Beige Book: Energy Inflation Strengthens, Employment Stable, and Sentiment Begins to Crack
The Federal Reserve reported that employment has remained relatively stable in recent weeks, while inflationary pressures have increased in many parts of the US, primarily due to surging energy costs related to the war in the Middle East. The Beige Book, released Wednesday (June 3), showed that economic activity generally grew at a mild to moderate pace in 10 of the 12 districts, based on surveys of regional business contacts collected through May 27.
The Fed noted that energy-related costs were the primary driver of price pressures, with spillover effects to shipping, packaging, food, and fertilizer costs. Several districts also highlighted consumer uncertainty and concerns about fuel prices that are pressuring households—indications that the energy shock is beginning to be felt in spending behavior.
While growth has remained resilient amid rising costs, the Beige Book suggests businesses are becoming concerned about weakening customer sentiment. The outlook for the next six months is reported to be relatively unchanged, but high uncertainty and signs of weakening consumer spending are beginning to weigh on business confidence.
On the employment side, the “low-hire, low-fire” pattern remains dominant: selective hiring and more for critical positions or to replace departing employees. However, manufacturing appears stronger in some districts, supported by defense-related activity and rising demand for data centers—a theme that aligns with technology infrastructure spending.
This report comes as US annual PCE inflation stood at 3.8% through April, the highest since 2023, and the market awaits Friday’s jobs report for further guidance. Investors currently expect the Fed to hold interest rates at its June 16-17 meeting, but futures contracts are already pricing in a 25 bps rate hike no later than March of next year.
The June meeting will also be the first policy meeting under new Fed Chairman Kevin Warsh, so the Beige Book narrative of “contagious” energy inflation and faltering consumer sentiment could potentially be crucial in policy communications, particularly regarding how long interest rates need to remain restrictive. (arl)
Source: Newsmaker.id
