US economic activity and inflation increased, Fed Beige Book shows

Economic activity in the United States has increased in recent weeks, the level of employment has barely changed and the repercussion of the increase in energy prices due to the war in the Middle East has been widespread, the Federal Reserve reported this Wednesday (3), two weeks before new chair Kevin Warsh chairs the United States central bank's monetary policy meeting for the first time.

"The business outlook for the next six months saw little change in forecast growth, as heightened uncertainty and signs of weakening consumer spending weighed on confidence," the Fed highlighted in the "Beige Book," a summary of qualitative economic data from across the country that monetary policymakers use to help inform their understanding of the economy and inform decisions.

"The districts noted that energy-related costs linked to the conflict in the Middle East were the main driver of inflationary pressure, with repercussions on transportation, packaging, groceries and fertilizers," added the American BC.

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Warsh replaced Jerome Powell as Fed chief in late May, just as many policymakers at the central bank were beginning to grow more concerned about inflation, which has picked up again in recent months, in part due to the U.S. and Israeli war on Iran. Inflation has been above the Fed's 2% target for more than five years.

The feeling within the Fed, based on public comments from monetary officials as well as the minutes of the April 28-29 meeting, has shifted from a shared expectation of an interest rate cut later this year to a growing feeling that maintaining the current rate for an extended period of time, or even an increase in borrowing costs, may be necessary.

Inflation, according to the measure monitored by the Fed, jumped from 3.5% in March to 3.8% in April, while the job market appears to have stabilized. Economists polled by Reuters expect the unemployment rate to remain at 4.3% when the US government releases the May jobs report on Friday (5).

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President Donald Trump chose Warsh with the explicit expectation that he would cut rates, but backed off his demand that he do so immediately due to the recent rise in gasoline prices.

The latest Beige Book could give more weight to the Fed's arguments against cutting interest rates, which the central bank has kept in a range of 3.50% to 3.75% throughout this year.

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Source: CNN