US Economic Activity Edges Up Amid Inflation Worries

The latest Beige Book report from the Federal Reserve shows economic activity in the US increased modestly, employment rose slightly, and prices increased moderately over recent weeks. However, the report's mixed tone may not sway central bank policymakers ahead of their September meeting.

Contacted by the Fed for the report, businesses expressed heightened uncertainty about inflation due to rising energy costs, potential new tariffs, and international conflicts. Some districts noted that price sensitivity among customers was limiting companies' ability to pass on input price increases.

The pace of price increases slowed in three out of 12 Fed districts, increased in one, and remained unchanged in eight. Inflation worries were evident throughout the report, with 17 mentions of inflation compared to 18 in the previous report. Several districts observed weakness in the housing market, citing high energy costs as a strain on consumer budgets.

Average interest rates have been stuck at 3.5-3.75% since December, and expectations for a rate hike this month are running high following comments from Fed Chairman Kevin Warsh that his focus is on inflation. However, it's unclear if the latest Beige Book report will tip the scales in favor of a rate increase.