Economic Conditions
October 10, 2011
Before the Federal Reserve reaches important decisions, it counts on an array of information relating to the country’s economic conditions. For this, data is gathered from banking institutions and branch directors. There are interviews with important business people, economists and experts in the markets. This information is then compiled in a publication known as the Beige Book. The book provides the metrics by district as well as by sector. The release of the Beige Book allows investors and Forex traders to know what the governors of the Federal Reserve are studying prior to the FOMC meeting.
And as you may know, many of the greatest traders in the Forex follow fundamentals in order to predict price action and make money on the Internet trading currencies.
If you’re wondering what they do with the Beige book, note that the Federal Reserve looks at the reports contained therein to decide on whether to change the interest rates. The book is of extreme value to them as it helps them get a clearer picture of the economy. In fact, it’s been known to change investors’ reactions, especially when the findings represented a different picture from what the analysts had predicted.
Remember though that the Beige Book is not an indication of how the FOMC is thinking. It merely shows what the condition of the economy is.
When the Beige Book indicates inflation is high, the Fed may consider hiking interest rates. If the reports show recessionary conditions, the Fed may reduce interest rates.
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