To The Moon

The Federal Reserve has indicated that overall U.S. employment has remained stable in recent weeks. However, inflation has continued to rise across many districts, influenced by higher energy prices stemming from the Middle East conflict.

According to the Beige Book survey released by the Fed on Wednesday, economic activity increased at a slight to modest pace in 10 of the 12 Federal Reserve districts.

The Fed stated, "Districts noted that rising energy costs tied to Middle East conflicts were a primary source of inflationary pressure, with pass-through to shipping, packaging, groceries, and fertilizer."

This report is based on information collected by the 12 regional Federal Reserve banks through May 27 and was compiled by the Federal Reserve Bank of Kansas City.

The sharp rise in energy prices following the outbreak of the Iran war has fueled market concerns about persistently high inflation. This has prompted a growing number of policymakers to advocate for keeping all options on the table, including further monetary policy tightening. Nevertheless, many officials still consider the current interest rate level to be appropriate.

Business Concerns

The report shows that while the economy remains resilient in the face of rising costs, businesses have expressed concerns about deteriorating consumer confidence.

The Fed noted, "Outlooks for the next six months point to little change in overall growth prospects, but uncertainty increased and signs of softening consumer spending weighed on their confidence."

The Beige Book also pointed out that manufacturing hiring was the strongest across several Fed districts, "supported by defense-related activity and demand for data centers."

The report stated that most districts continued to describe labor markets as "low hiring, low firing." Businesses remained cautious in hiring, focusing primarily on critical roles and filling vacancies from natural attrition.

Data released last week by the Bureau of Economic Analysis showed that the Fed's preferred inflation gauge rose 3.8% in the 12 months through April, the largest increase since 2023. Officials will receive the non-farm payrolls report on Friday.

According to federal funds rate futures pricing, investors expect the Fed to hold rates steady at its meeting on June 16-17. However, markets have fully priced in a 25-basis-point rate hike by March of next year.

This month's meeting will also be the first policy meeting chaired by the new Federal Reserve Chairman, Kevin Warsh.