Fed’s Beige Book Highlights Rising Inflation Fears

According to the Fed’s Beige Book, released on Wednesday, wages and other prices gains were seen across most of the 12 districts. As for the overall economic outlook; the Fed said that the US economy grew at a modest pace since mid-May but several of the central bank’s regional districts reported growing signs of slower demand and five noted recession concerns.

The report is a collection of business inputs, comments and feedback from around the country prepared in time for the Fed’s next meeting on July 26-27.

Several US districts reported signs of a slowdown in demand, and contacts in five districts noted concerns over an increased risk of a recession. Most districts reported that consumer spending moderated as higher food and gas prices diminished households’ income.

The document added that “due to continued low inventory levels, new auto sales remained slow. Hospitality and tourism contacts mentioned healthy leisure travel activity with some noting an uptick in business and group travel”.

Manufacturing activity was mixed, and many Districts reported that supply chain disruptions and labour shortages continued to hamper production. Non-financial services firms experienced stable to slightly higher demand, and some firms reported that revenues exceeded expectations, according to Fed’s document.

Housing demand weakened noticeably as growing concerns about affordability contributed to non-seasonal declines in sales, resulting in a slight increase in inventory and more moderate price appreciation. Commercial real estate conditions slowed. Loan demand was mixed across most Districts; some financial institutions reported increased customer usage of revolving credit lines, while others reported weakening residential loan demand amid higher mortgage interest rates.

Substantial price increases were reported across all Districts, at all stages of consumption, though three quarters noted moderation in prices for construction inputs such as lumber and steel. Increases in food, commodities, and energy (particularly fuel) costs remained significant, though there were several reports that price inflation for these categories had slowed compared with recent months but remained historically elevated.