The Fed’s Tealbook ponders alternate economic scenarios
The Fed’s Tealbook ponders alternate economic scenarios
Chances are, you’ve heard us talk many-a-time about the Federal Reserve’s Beige Book, a compilation of anecdotal reports on the state of the economy that happens to sport a beige cover.
At Wednesday’s press conference, Fed chair Jay Powell was asked about whether the central bank is starting to model what could happen in the event of mass deportations or other changes to immigration policy.
He brought up another book the Fed puts together: the Tealbook.
That’s a report that members of the Fed’s Open Market Committee receive before every meeting that includes several forecasts about what could happen in the economy.
The Fed used to have even more books with colorful covers: the Greenbook, which looked at the current state of the economy and what could happen down the road; and the Bluebook, which looked at how various decisions on interest rates could play out.
But a couple decades ago, the Fed decided to merge those books. When you combine blue and green, you get teal.
“And so at first it was a little bit cheeky, and then it just stuck,” said Seth Carpenter, Global Chief Economist at Morgan Stanley. He also spent 15 years at the Fed and helped write many Tealbooks.
He said one of the book’s roles is to consider some alternate economic scenarios.
“What would happen to the forecast if universal tariffs of 20% were put on next month, for example,” said Carpenter.
Back in 2019, when the labor market was really tight, the Tealbook looked at what could happen if demand for labor weakened. Gross domestic product would slow down. Unemployment would tick up.
Former Fed economist Claudia Sahm also used to help write the Tealbook. She’s now Chief Economist at New Century Advisors. She said all of these scenarios are reasonable possibilities.
“They often are pretty obvious. It’s like the things we’re worried about, or we’re debating,” said Sahm.
Talking through these scenarios helps the Fed be more prepared, said Columbia professor and former Fed governor Frederic Mishkin.
“Having discussed the scenario, if things actually turn out to be different than you expected, will help you actually change your decision process maybe at the next meeting,” said Mishkin.
That’s why Mishkin says the Tealbook can help the Fed adapt quickly if one of its alternate scenarios becomes reality.
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