Why the Beige Book Takes on Added Importance in Times of Growing Economic Uncertainty

The Beige Book, more technically known as the Summary of Commentary on Current Economic Conditions, is a report compiled by the United States Federal Reserve Board (The Fed) eight times each year. The information a review of economic conditions within the Feds 12 banking districts. The information discusses the business activity in the area, the trends, and how tight labor markets are.

Information in the Beige Book is divided by industry, including real estate, tourism, agriculture, financial services, manufacturing, and high-tech. Trends in employment, prices, and wages for each of the 12 districts is also a regular part of the reporting.

Additionally, the districts comment on how the businesses of their region are impacted by national and international trends. The Beige Book will also examine how local businesses are affected by changes in exchange rates, oil prices, and inflation.

Common Beige Book Usage

If the district overall reports show economic activity is slowing, the FOMC may begin to lean toward easing monetary policy, to stimulate economic strength.

The FOMC may also discern from the districts an overheating national economy inflationary risks headed higher than the Fed target. In this case they will discuss at the FOMC meeting hitting the economic brakes with a contractionary strategy. This could include pulling money out of the economy and raising interest rates. 

The Beige Book allows investors and analysts to see a report that the FOMC will use to help guide their hand. Many view it as a lagging indicator as the information is looking in the rearview mirror. Other Fed watchers consider the Beige Book contents a leading economic indicator because it influences the FOMC’s decisions.

The most critical change the Fed may take after reviewing economic detail of the entire country and the business is adjustments to the Fed Funds rate. Surprises in the report has the ability to cause the markets (bond and stock) to suddenly turn.

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