The Federal Reserve said energy price increases stemming from the Middle East war are acting as a new inflationary pressure across the U.S. economy. In the labor market, a "low-hire, low-fire" pattern appears to be continuing, with corporations refraining from both hiring and layoffs.
In the Beige Book released on the 3rd (local time), the Federal Reserve said, "Energy expense increases linked to the Middle East conflict are serving as a major source of inflationary pressure." The Fed noted that the impact of rising energy prices is spreading to a range of industries, including shipping, packaging, food, and fertilizer, and that concern is growing among consumers about higher fuel costs.
The Beige Book is an assessment of economic conditions compiled by the 12 Federal Reserve Banks from corporations, financial institutions, and economic experts in each district. It is released two weeks before Federal Open Market Committee (FOMC) meetings and is used as References for monetary policy decisions.
This Beige Book is the first report issued under newly inaugurated Fed Chair Kevin Warsh.
The U.S. economy appears to be maintaining a modest growth trend overall. Economic activity increased slightly in 10 of the 12 Federal Reserve districts. However, it was found that corporations are concerned that consumer sentiment is weakening as expense burdens grow.
The Fed said, "Despite high uncertainty and signs of a slowdown in consumer expenditure, corporations responded that their outlook for the next six months is largely unchanged."
The labor market is neither clearly expanding nor contracting. The report said, "In most districts, hiring remained at the level of filling essential positions or replacing retirees," explaining that corporations are staying cautious about new hiring. By contrast, as demand related to the defense industry and data centers increases, hiring has risen in some manufacturing sectors.
Markets see a high likelihood that the benchmark interest rate will be kept on hold at the FOMC meeting on the 16th–17th. This meeting is the first monetary policy meeting chaired by Warsh since taking office.