The Fed’s “Beige Book” and Average-Inflation Targeting Impacts on Supply Chain

Eight times a year, the Federal Reserve puts out its Summary of Commentary on Current Economic Conditions (colloquially, its “Beige Book”), a perspective on the national economy gleaned from interviews with businesses across the country. As someone who is deeply interested in economics and econometrics, I find the Beige Book fascinating because it provides a qualitative, on-the-ground perspective on the state of the US economy that can be lost when we look at macro-level economic indicators.

Supply chain disruptions were a major theme in the the July 14 Beige Book: “Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods,” the authors wrote in the report summary.

Meanwhile, inflation is back, and while wages are increasing as businesses are short of labor during the national re-opening – the Consumer Price Index rose 5.4% for the 12 months ending in June.

The Federal Reserve System has a dual mandate: “price stability,” as judged by maintaining a 2% inflation rate; and “maximum sustainable employment,” informed by “a wide range of labor market indicators” (Chicago Fed). Last summer, Federal Reserve Chairman Jerome Powell announced that the Federal Open Market Committee “will tolerate inflation above its target for a period of time to offset periods when inflation was below its target. In other words, the FOMC is targeting¬†average¬†inflation of 2% in the long run”.

So what does this mean for supply chain management? Potentially, that inflation will stay at 4%+ for quite a while until the FOMC believes that the average 2% goal is met, impacting costs all along the supply chain and injecting uncertainty into business planning and investment.

Robust supply chain modeling and simulation – including inflation rate scenarios – can help make your supply chain resilient to the uncertain world ahead of us. Please contact Data Driven Supply Chain to discuss how we may partner and use artificial intelligence techniques to design and evaluate your supply chain.