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Using anecdotes to predict recessions

Using anecdotes to predict recessions

Update: 2024-05-291
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This episode of The Indicator from NPR explores the Beige Book, a report published by the Federal Reserve that contains anecdotal information about the economy. The hosts discuss the Beige Book's value and how it's used to tell stories about the economy. They then present the Beige Award for Technical Achievement in Beige Bookery to the Cleveland Fed for their research using machine learning to analyze the Beige Book's sentiment. The research found that the Beige Book can be a helpful tool for predicting economic downturns, particularly in certain regions of the country. The episode also features an interview with Ira Jersey, a chief US interest rate strategist for Bloomberg Intelligence, who discusses how he uses AI analysis of the Beige Book to help investors make decisions about interest rates. The episode concludes with a discussion about the importance of both data and text in understanding the economy.

Outlines

00:00:00
The Beige Book: A Love-Hate Relationship

This Chapter begins with a discussion about the Beige Book, a report published by the Federal Reserve that contains anecdotal information about the economy. The hosts express their fondness for the Beige Book, highlighting its ability to tell stories about the economy. However, they also acknowledge that some people, like journalist Matt Iglesias, find the Beige Book to be a less valuable source of information, questioning its usefulness in providing insights into economic trends.

00:03:17
The Beige Award for Technical Achievement

This Chapter focuses on the Beige Award for Technical Achievement in Beige Bookery, which is presented to the Cleveland Fed for their research using machine learning to analyze the Beige Book's sentiment. The research found that the Beige Book can be a helpful tool for predicting economic downturns, particularly in certain regions of the country. The hosts discuss the implications of this research and how it can be used to inform economic decision-making.

00:06:57
AI and the Beige Book: A New Era of Analysis

This Chapter delves into the use of AI in analyzing the Beige Book. The hosts interview Ira Jersey, a chief US interest rate strategist for Bloomberg Intelligence, who discusses how he uses AI analysis of the Beige Book to help investors make decisions about interest rates. Jersey explains the benefits of using AI for this purpose, highlighting its ability to identify patterns and trends that might be missed by human analysts.

00:09:41
The Future of the Beige Book: Data and Text

This Chapter concludes the episode with a discussion about the future of the Beige Book. The hosts acknowledge the potential for AI analysis to replace traditional reading of the Beige Book, but they also emphasize the importance of both data and text in understanding the economy. They argue that the Beige Book's rich text should continue to be valued alongside the data generated by AI analysis.

Keywords

Beige Book
The Beige Book is a report published by the Federal Reserve that contains anecdotal information about the economy. It is compiled by the 12 regional Federal Reserve banks and provides insights into current economic conditions based on interviews with businesses and other contacts in each region. The Beige Book is released eight times a year and is considered a valuable source of information for economists and investors.

Federal Reserve
The Federal Reserve, also known as the Fed, is the central bank of the United States. It is responsible for setting monetary policy, regulating banks, and providing financial services to the government. The Fed's actions have a significant impact on the US economy, including interest rates, inflation, and employment.

Machine Learning
Machine learning is a type of artificial intelligence (AI) that allows computers to learn from data without being explicitly programmed. It involves training algorithms on large datasets to identify patterns and make predictions. Machine learning is used in a wide range of applications, including image recognition, natural language processing, and financial modeling.

AI Analysis
AI analysis refers to the use of artificial intelligence (AI) to analyze data and extract insights. This can involve using machine learning algorithms, natural language processing, and other AI techniques to identify patterns, trends, and anomalies in data. AI analysis is becoming increasingly common in various fields, including finance, healthcare, and marketing.

Economic Downturn
An economic downturn is a period of decline in economic activity, typically characterized by a decrease in GDP, employment, and consumer spending. Downturns can be caused by a variety of factors, including financial crises, recessions, and wars. They can have a significant impact on businesses, individuals, and the overall economy.

Interest Rates
Interest rates are the cost of borrowing money. They are set by central banks, such as the Federal Reserve, and influence the cost of loans, mortgages, and other forms of credit. Interest rates play a crucial role in economic growth and inflation.

Bloomberg Intelligence
Bloomberg Intelligence is the research arm of Bloomberg LP, a global financial data and media company. It provides in-depth analysis and insights on a wide range of industries and markets, including finance, technology, and healthcare. Bloomberg Intelligence is a valuable resource for investors, analysts, and other professionals seeking to understand market trends and make informed decisions.

Sentiment Analysis
Sentiment analysis is a technique used to determine the emotional tone or sentiment expressed in text data. It involves using natural language processing (NLP) and machine learning algorithms to analyze text and classify it as positive, negative, or neutral. Sentiment analysis is widely used in social media monitoring, customer feedback analysis, and market research.

Q&A

  • What is the Beige Book and why is it important?

    The Beige Book is a report published by the Federal Reserve that contains anecdotal information about the economy. It is compiled by the 12 regional Federal Reserve banks and provides insights into current economic conditions based on interviews with businesses and other contacts in each region. The Beige Book is considered a valuable source of information for economists and investors because it provides a more nuanced view of the economy than traditional economic data.

  • How is machine learning being used to analyze the Beige Book?

    The Cleveland Fed has developed a research project using machine learning to analyze the Beige Book's sentiment. They use AI to classify each sentence in the Beige Book as positive, neutral, or negative about the economy. This allows them to track changes in sentiment over time and potentially predict economic downturns.

  • Can the Beige Book predict a recession?

    While the Beige Book can be a helpful tool for predicting economic downturns, it is not a crystal ball. The research found that the Beige Book's sentiment can correlate with economic downturns, but it is not a definitive predictor. It is important to consider other economic indicators and factors when making predictions about the economy.

  • How is AI analysis being used to help investors make decisions about interest rates?

    Ira Jersey, a chief US interest rate strategist for Bloomberg Intelligence, uses AI analysis of the Beige Book to help investors make decisions about interest rates. He has developed a computer model that analyzes the sentiment of the Beige Book and compares it with actions taken by the Federal Reserve. This allows him to identify potential shifts in monetary policy and inform investors' decisions.

  • What is the future of the Beige Book in the age of AI?

    The hosts discuss the potential for AI analysis to replace traditional reading of the Beige Book. However, they also emphasize the importance of both data and text in understanding the economy. They argue that the Beige Book's rich text should continue to be valued alongside the data generated by AI analysis.

Show Notes

Eight times a year, we award regional Federal Reserve Banks with our coveted Beigie Award. While the anecdotes within the Beige Book offer us fascinating looks into the economy, to others, it can be difficult to make anything of the stories they tell. That's why we're giving out a special Beigie award today to some economists who found a way to use anecdotes to peer into our economic future.

Regional Economic Sentiment: Constructing Quantitative Estimates from the Beige Book and Testing Their Ability to Forecast Recessions

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Using anecdotes to predict recessions

Using anecdotes to predict recessions