The Fed "Beige Book" is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market.
Market participants are continually attempting to determine
what FOMC interest rate policy will be ahead of the next meeting. Any
deviation from expectations usually results in extreme short-term market
volatility. The timing of the "Beige Book" provides analysts a valuable look
at one of the many factors the FOMC considers in setting interest rate policy.
If the "Beige Book" shows signs of inflationary pressures, the Fed may decide
to raise interest rates. However, if the report shows signs of difficulties,
the Fed may lower rates to stimulate the economy.
The economic and market trends that characterized the past few years appear to
have changed course and the markets have reacted decisively. Recent strong
fundamental economic data indicates that economic growth continues along with
possible inflationary pressures and the Fed may soon be forced to tighten
monetary policy. While it would be a shock if the "Beige Book" indicated a
contrary view, the possibility remains.
Be careful ahead of the "Beige Book" release. It is possible for mortgage interest rates to improve if the Fed hints that rates will stay unchanged. However, the risks far outweigh the rewards in this current market environment. Getting caught by a negative market movement would be costly.