Fed Report Hints at Rate Hike, but Uncertainty Remains

The latest report from the Federal Reserve shows that economic activity in the US has increased modestly, while prices have risen moderately. The Beige Book, which collects qualitative data from all 12 regional banks, was released on Wednesday.

According to the report, employment rose slightly, but price increases slowed down in three of the 12 Fed districts, remained unchanged in eight, and increased in one. Consumer-facing contacts noted that heightened price sensitivity among customers is limiting their ability to pass through input price increases.

The report may not have a significant impact on the decision-making process for central bank policymakers as they weigh whether to raise interest rates at their September 15-16 meeting. Expectations for a rate hike this month are high, with five of the 19 policymakers saying it is past due and several more requiring further improvement in inflation before leaving rates unchanged.

Despite the recent better-than-expected monthly readings on inflation, Fed Chairman Kevin Warsh signaled his openness to a rate hike if data doesn't show sufficient progress toward the central bank's 2% target. New York Fed President John Williams said, 'My view is that we just have to keep watching' the data.