Federal Reserve Beige Book flags firmer U.S. activity and inflation pressures

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Ashutosh Sureka

22 hours ago

Federal Reserve Beige Book flags firmer U.S. activity and inflation pressures — Fed flags rising inflation

Fresh Federal Reserve survey findings point to a U.S. economy that is still expanding modestly even as businesses report mounting cost pressure. The snapshot arrives two weeks before Kevin Warsh leads his first policy meeting as Fed chair, with officials increasingly wary that inflation may stay elevated for longer.

Highlights

Federal Reserve Beige Book reports a slight increase in U.S. economic activity and stabilizing employment, but weak consumer spending and persistent uncertainty dampen growth outlooks.
Energy-related costs from the Middle East conflict drive renewed inflationary pressures, with the Fed's preferred inflation gauge rising to 3.8% in April from 3.5% in March.
Fed signals rate cuts are unlikely soon, maintaining policy rates at 3.50%-3.75% as inflation risks remain elevated and unemployment is projected to stay at 4.3%.

Beige Book signals persistent price pressure

As reported by the Federal Reserve, its latest Beige Book says economic activity increases slightly in recent weeks while employment is little changed across the country. The survey also says business outlooks for the next six months show little change in expected growth, as elevated uncertainty and signs of weakening consumer spending weigh on sentiment.

The Fed says energy-related costs tied to the conflict in the Middle East are the main driver of inflationary pressures, with spillovers into shipping, packaging, groceries and fertilizer. Those findings add to evidence that higher fuel and input costs are feeding broadly through the economy rather than remaining limited to the energy sector.

Warsh replaces Jerome Powell in late May, at a time when policymakers are becoming more concerned about inflation after its recent reacceleration. Inflation, by the Fed's targeted measure, jumps to 3.8% in April from 3.5% in March, while the labor market appears to stabilize after earlier signs of weakness.

Rate outlook hardens ahead of June meeting

The tone of recent public comments from Fed officials, along with minutes from the April 28-29 meeting, indicates that expectations for an interest rate cut later this year are fading. In their place, a growing view emerges that rates may need to remain at current levels for longer, or even move higher if price pressures persist.

The latest Beige Book accounts may strengthen arguments against reducing the policy rate, which the central bank holds in the 3.50%-3.75% range throughout this year. Economists polled by Reuters expect the U.S. unemployment rate to remain at 4.3% when the government releases the May jobs report on Friday.

President Donald Trump chooses Warsh with the explicit expectation that he would cut rates, but he backs away from demanding immediate action after the recent rise in gasoline prices. That leaves the Fed entering its next meeting with inflation risks still elevated and little sign of a clear slowdown strong enough to justify easier policy.

Our earlier coverage of the Iran conflict’s impact on fuel prices explained how Tehran’s closure of the Strait of Hormuz helped drive petrol and diesel prices sharply higher, pushing U.S. inflation up to 3.8% in April. The article also noted the political and economic fallout in Washington, including Treasury Secretary Scott Bessent’s testimony framing the inflation jump as temporary amid growing pressure on household budgets.

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