January 31, 2023

Volume XIII, Number 31

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January 31, 2023

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January 30, 2023

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An Alarming Trend in the Fed’s Economic Outlook

Perhaps nothing has a larger bearing on risk management than the future of the economy. Corporate revenues, insurance pricing, staffing and perhaps even social unrest all hinge on a continued recovery and all the (relative) progress made since 2008 could be washed away by a receding economic tide if, say, the euro zone crisis deepens or the U.S. economy double-dips back into recession.

But, really, who has the time to understand the economy? I barely passed high school math and now I’m supposed to figure read the tea leaves of a $16 trillion greenback trail? Please. Can’t someone just tell me what’s happening as if I’m a third-grader?

Oh. Why thank you, Wall Street Journal and Goldman Sachs. (via @WSJ)

The chart below is pretty self-explanatory — and fairly alarming. I’ll let them explain.

Wall Street loves numbers — always has, always will. That makes the Federal Reserve’s periodic beige book report (a/k/a “Current Economic Conditions by Federal Reserve District”) a bit frustrating. It’s all words: “Economic activity generally expanded modestly since the last report,” the latest version said. So is that good or bad? More or less? A lot or a little?

Enter the clever economists at Goldman Sachs: They have turned the Fed’s words into numbers. “Our approach is simple,” this said this week. “We compile a list of ‘good’ and ‘bad’ words frequently used in Beige Books to describe economic conditions and search historical reports for their relative occurrence over time. Although very simple, this word-counting exercise allows us to interpret the qualitative information in the Beige Book quantitatively.”

Simple? Sure. Then again, so am I.

    

Risk Management Magazine and Risk Management Monitor. Copyright 2023 Risk and Insurance Management Society, Inc. All rights reserved.National Law Review, Volume II, Number 288
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About this Author

Senior Editor

Jared Wade is the senior editor of Risk Management magazine and the Risk Management Monitor blog.

212-655-5919
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