NEW YORK — The Federal Reserve said price pressures in the United States have grown considerably, citing higher energy costs stemming from conflict in the Middle East and tariffs imposed by the Donald Trump administration.
In its August Beige Book released on the 2nd, the Fed said input cost pressures in manufacturing and construction had risen noticeably in several districts. Prices rose at a moderate pace in eight of the 12 Federal Reserve districts and modestly in two, according to the report. Prices increased slightly in one district, while another reported strong gains. Compared with the previous survey period, the pace of price increases was unchanged in eight districts and slowed in three. One district reported a faster pace.
Reports of higher energy, transportation and raw material prices were widespread across industries, the Fed said. Price increases were especially pronounced for metals and petrochemical products. Retail and manufacturing contacts across multiple districts reported that the effects of tariffs were continuing to show. Businesses also reported significant cost pressure from rising medical and insurance expenses. Consumer goods companies in several districts noted that greater price sensitivity among customers was limiting their ability to pass higher input costs on to consumers. Business contacts reported growing uncertainty about the impact of elevated energy prices, policy and international conflicts, the Fed said.
Overall economic activity in the United States increased modestly. Ten of the 12 districts reported slight to modest growth, according to the Fed, while activity was unchanged in the remaining two. Consumer spending rose slightly overall, and auto sales were generally sluggish. The Fed attributed the weakness in auto sales to softer consumer confidence, high fuel prices and rising financing costs.
Tourism demand was strong as the vacation season got under way, despite higher airfares. Manufacturing activity recovered in most districts. Some districts highlighted continued strong demand for defense- and data center-related orders. In construction, residential building declined while nonresidential building increased on the back of data center projects.
Employment rose only slightly overall. Employment grew modestly in three districts and slightly in four, while five reported no change. Wage growth was modest to moderate in most districts.
The Beige Book is a report on economic conditions compiled by the 12 regional Federal Reserve banks, which gather information from banks, businesses and experts in their districts. It is typically released two weeks before a regular meeting of the Federal Open Market Committee, which sets interest rates. The latest edition reflects survey results collected by district through the 24th of last month, following the previous report in July.
The federal funds futures market lowered the probability of a rate increase at the FOMC meeting on the 15th and 16th to 62.3% from 67.2% a day earlier, according to CME Group's FedWatch tool. The probability of no change rose to 37.7% from 32.8%.
