What Can Investors Learn from the Fed’s Beige Book?

The Federal Reserve has just released the latest edition of its Beige Book – a report it publishes eight times a year. It’s a compilation of anecdotal information from each of its branches throughout the United States depicting economic conditions. The Beige Book’s sources consist of reports from Bank and Branch directors, as well as interviews with “key” business contacts, marketing professionals and economists.
It organizes its findings by district and sector. Again, the information is anecdotal, and is not intended to substitute for the ample statistical data the Fed frequently relies on. The Beige Book is meant, rather, to complement this data.
These nationwide contributions to the Beige Book help the Federal Open Market Committee (FOMC) formulate monetary policy – principally through the adjustment of the interest rate on federal funds. Each edition of the Beige Book is prepared sufficiently in advance of a particular Fed policy meeting so that the information can inform FOMC decisions and actions.
The Fed has three FOMC meetings left this year; and you can be sure attendees will use the compiled information from the Beige Book to help guide FOMC policy decisions in each of these meetings.
The Fed’s findings from across its twelve districts in the most recent Beige Book (on August 29) depicts the current U.S. economy expanding at a slow pace with only “slight” inflation. Consumer spending, traditionally a measure of economic growth, has remained pretty much the same.
In most districts, labor market conditions remained inhibited, according to the Fed. But, in the minutes of its August meeting, our central bank did offer a cautionary note about overvaluation of the commercial real estate market. The Beige Book did mention that market activity for commercial real estate has largely expanded.
Auto sales have declined, although sales of non-financial services have showed some gains. Manufacturing has risen a bit in almost all districts. And residential real estate activity improved moderately.
In general, though, the United States economy remains sluggish. Given this scenario, the Fed is unlikely to announce a rate hike at its upcoming September 21 meeting.
Now, some of you might think low interest rates bode well for gold. And they can – at first. After all, if your return on an interest-bearing investment remains low, your opportunity cost for purchasing gold also remains low. Why get involved, then, with a dollar-denominated asset at a paltry rate of interest?
That said, an economy needs some inflation to thrive. Obviously, you want to hold gold in your portfolio to protect you against the kind of hyperinflation consumers experienced in early-twentieth-century Germany or, more recently, in Venezuela.
But for businesses to invest and broaden their payroll base, they need to be able to see higher prices. Also, unless banks can see a bigger return on their money, they’ll pull back on loans. Businesses need to borrow money to be able to expand.
So, yes, you should invest in gold to protect your retirement funds against a very high rate of inflation – a distinct possibility if the Fed keeps debasing the dollar. But you should also invest in gold to maintain diversification in your portfolio. Let the Fed Beige Book serve as your reminder.
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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