Federal Reserve Beige Book and How It's Used

The Beige Book's Effect on the U.S. Economy

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The Beige Book is a Federal Reserve survey of the nation's economic conditions. Each of its 12 banking districts discusses how fast the economy is growing in their areas. This includes how difficult or easy it is to hire, and it addresses the general pace of business activity.

The Beige Book breaks information down by industry, including manufacturing, high-tech, and financial services. It also includes tourism, retail, real estate, and agriculture. 

The bankers also summarize local trends in employment, wages, and prices in their Beige Book Reports.

Key Takeaways

  • The Beige Book provides a useful insight into which industries are growing, and which are falling off. 
  • The book gets its name from the color of its cover.
  • Members of the Federal Open Market Committee (FOMC) receive an updated copy two weeks before each of their eight annual meetings.
  • The book is compiled by the 12 U.S. banking districts.

How the Fed Uses the Beige Book

The Beige Book is given to the members of the Federal Open Market Committee (FOMC). They receive it two weeks before each of the FOMC's eight annual meetings. The book provides a timely yet comprehensive snapshot of the U.S. economy.

The FOMC will consider expansionary monetary policy if the Beige Book reports that the economy is sluggish. It will use its monetary policy tools to increase the money supply. Businesses will invest and hire more when there's more money available. People will spend more, too. Both of these will spur economic growth.

The FOMC will hit the brakes with contractionary policy if the Beige Book reports that there's too much inflation. It will raise interest rates and reduce the money supply. Banks can charge higher interest rates for loans, and businesses will invest less. High credit-card rates make families spend less as well. 

Aside from rather short-lived COVID-19-induced economic stress, the Beige Book has reported that the economy is in the expansion phase of the business cycle since 2009. That's essentially a Goldilocks economy. It's the ideal growth rate of between 2 and 3%. Inflation has been right around the Fed's target inflation rate of 2% as measured by the annual core inflation rate.

Where Do the Banks Get Information?

The banks report on local events that impact their regions. This includes events such as port closures, strikes, and storms. They also comment on how their region's businesses are affected by national and global trends. The Beige Book discusses how exchange rates, inflation, and oil prices affect local businesses. 

How the Beige Book Got Its Name

If you think "Beige Book" is a dull name, the real name is worse. It's officially called the "Summary of Commentary on Current Economic Conditions by Federal Reserve District." It's called the Beige Book for short because the cover is beige.

Another report prepared for the FOMC meetings is named for its cover's color. The Tealbook is officially titled “Report to the FOMC on Economic Conditions and Monetary Policy." It appears in two parts: Tealbook A, “Economic and Financial Conditions: Current Situation and Outlook,” and Tealbook B, “Monetary Policy: Strategies and Alternatives.” 

The Tealbook summarizes the Fed's staff forecasts of the U.S. and global economy. It's given to the FOMC members prior to regularly scheduled meetings. It was created from the merger of the Bluebook and Greenbook in 2010.

How the Beige Book Affects the U.S. Economy

Many economists consider the Beige Book to be a leading economic indicator because its content influences the FOMC's decisions. The most critical of these are changes in the Fed funds rate. That is itself a leading indicator. 

The FOMC increased the federal funds rate by 50 basis points or .50% in May 2022 based in part on this information. This raises the target range from 25 to 50 basis points to 75 to 100 basis points in response to rising inflation.

But the Beige Book can also be considered a lagging indicator. It reports on what already happened in the districts. It doesn't say anything about what the Fed Districts think is going to happen. 

The Beige Book's importance should never be underestimated, even though the name itself is enough to induce a yawn. It's a valuable asset when you're trying to gauge the health of the U.S. economy. 

Frequently Asked Questions (FAQs)

Where do the banks get their information?

The banks collect information from local sources. They talk to their branch directors, business leaders, economists, and local experts. That gives the Fed powerful insights into how the economy is doing at a grassroots level.

How long has the Fed used the Beige Book?

The first Beige Book was issued in 1983. Its format was changed once in 2017 to include a more detailed national summary.

Article Sources

  1. Board of Governors of the Federal Reserve System. "The Fed Explained: What the Central Bank Does," Pages 13, 28.

  2. Board of Governors of the Federal Reserve System. "Frequently Asked Questions."

  3. U.S. Bureau of Labor Statistics. “CPI for All Urban Consumers,” Select "U.S. city average, All items less food and energy," "Retrieve Data," "More Formatting Options," "12-Month Percent Change," "2009 to 2022."

  4. Board of Governors of the Federal Reserve System. "Why Does the Federal Reserve Aim for Inflation of 2 Percent Over the Longer Run?"

  5. Board of Governors of the Federal Reserve System. "The Fed - Advanced Search Document Categories."

  6. Board of Governors of the Federal Reserve System. "Transcripts and Other Historical Materials."

  7. Board of Governors of the Federal Reserve System. "Federal Reserve Issues FOMC Statement."

  8. Board of Governors of the Federal Reserve System. "Beige Book."

  9. Board of Governors of the Federal Reserve System. "Frequently Asked Questions."