Financial Options

Name of Source: Federal Reserve Bank
Indicators and Publications Produced:

• G.19 Consumer Credit Release
• G.17 Industrial Production and Capacity Utilization
• H.4.1 Factors Affecting Reserve Balances
• H.3 Aggregate Reserves of Depository Institutions and the Monetary Base
• H.6 Money Stock Measures
• U.S. Reserve Assets/Foreign Official Assets Held at Federal Reserve Banks
• Beige Book
• Senior Loan Officer Opinion Survey on Bank Lending Practices
• Survey of Consumer Finances
• The Federal Reserve Bulletin
• Empire State Manufacturing Index: New York branch
• Business Outlook Survey (Pennsylvania, New Jersey and Delaware): Philadelphia branch

Comment: The Federal Reserve is a special case as it's a producer of economic indicators, a major consumer of economic indicators and a big mover causing changes in the US and world economies. As a user of economic data, the Federal Reserve is concerned with maintaining two major public policy objectives - price stability and full employment. Corollary objectives are a stable dollar and long term economic growth. The Humphrey-Hawkins Full Employment Act of 1978 required a Fed policy that «maintains long-run growth, minimizes inflation, and promotes price stability.»

The Federal Reserve produces its own economic indicators and uses economic indicators produced by others to help in setting monetary policy including interest rates and potentially margin and reserve requirements. The Federal Reserve directly sets the discount rate, which is the rate it charges member banks for loans secured by Treasury securities. The Federal Reserve also sets targets for the federal funds rate, which is the rate that member banks charge each other for overnight loans. It meets those targets through «open market operations,» involving the sale and purchase of US Treasury securities.

One of the major uses of economic indicators for investors, whether produced by the Fed or others, is in helping to determine future Fed action. Economic indicators which indicate the economy is growing too quickly, creating a danger of inflation, may lead investors to believe the Federal Reserve will take action to raise interest rates. This is why markets often react negatively to seemingly positive indicators like drops in unemployment, higher retail sales or positive job growth.

The Fed produces a summary of economic conditions called the Beige Book. The Beige Book describes current economic conditions and forecast conditions for each of the twelve Fed districts. The Beige Book is based on statistics gathered by the Federal Reserve and economic indicators produced by others. The Beige Book is very useful as both an excellent summary of a variety of economic indicators and as an indication of possible future Fed action. The Fed also prepares two internal documents, the Green Book and the Blue Book, for use by the members of the Federal Open Market Committee, the committee which makes the Fed's monetary policy decisions. Only the Beige Book is released to the public.