U.S. economic activity has picked up a bit in recent weeks, employment levels have barely shifted, and the impact of rising energy prices due to the Middle East conflict has been widespread, reported the Federal Reserve this Wednesday, two weeks before new chair Kevin Warsh leads the monetary policy meeting for the first time. $OPN
"The business outlook for the next six months hasn't really changed much in terms of expected growth, as heightened uncertainty and signs of consumer spending weakening have weighed on confidence," said the Fed in its latest "Beige Book" report, a qualitative economic data summary from across the country that monetary policymakers use to inform their understanding of the economy and support their decisions.
"Districts noted that energy-related costs linked to the Middle East conflict were the main driver of inflationary pressure, impacting transportation, packaging, groceries, and fertilizers," the report said. $MAGMA
Warsh replaced Jerome Powell as head of the Fed at the end of May, at a time when many monetary policymakers at the central bank were starting to get jittery about inflation, which has accelerated again in recent months, partly due to the U.S.-backed war against Iran. Inflation has been above the Fed's 2% target for over five years.
The sentiment within the Fed, based on public comments from monetary authorities as well as the minutes from the April 28-29 meeting, shifted from a shared expectation of a rate cut by the end of this year to a growing feeling that maintaining the current rate for an extended period may be necessary, or even a hike in borrowing costs.
Inflation, according to the measure targeted by the Fed, jumped from 3.5% in March to 3.8% in April, while the labor market, which seemed to be wobbling last year when the Fed slashed rates, appears to have stabilized. Economists surveyed by Reuters expect the unemployment rate to hold steady at 4.3% when the U.S. government releases its jobs report for May on Friday.
President Donald Trump picked Warsh with the explicit expectation that he would cut rates, but he backed off his demand for an immediate move due to the recent spike in gas prices.
The reports from the latest Beige Book might lend more weight to the Fed's arguments against cutting interest rates, which the central bank has kept in the range of 3.50% to 3.75% all year long. $STO
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