Economic activity across the United States edged higher in recent weeks while price increases moderated, according to the Federal Reserve's Beige Book report released Wednesday, offering a mixed but generally positive snapshot of the economy ahead of policymakers' September meeting.
The report, based on data collected through August 24, found that employment rose slightly and that the pace of price growth slowed in three of the 12 Federal Reserve districts, increased in one, and was unchanged in eight. The general outlook for coming months was described as positive, though sentiment was mixed across sectors.
"Contacts across industries expressed heightened uncertainty and upside risks to inflation around elevated energy prices and potential new tariffs," the Boston Fed's section of the report stated. A window retailer in the New York Fed's district noted sales slowed as consumers hesitated to invest in their homes amid inflation and rising mortgage rates. Many contacts cited high energy costs straining consumer budgets, with concern that impacts could intensify during the home heating season if the Middle East conflict remains unresolved.
Input price pressures were notably elevated in manufacturing and construction across multiple districts, with widespread reports of price increases for energy, transportation, and raw materials — particularly metals and petrochemicals, the report said. Consumer-facing contacts in a few districts noted that heightened price sensitivity among customers was limiting their ability to pass through input cost increases.
Several districts flagged sector-specific dynamics. Data centers are propping up construction activity; without them, construction would be in a recession, a contact told the Chicago Fed. In the livestock and dairy sectors, robust consumer demand for protein — partly driven by users of weight-loss drugs being advised to increase protein intake to minimize muscle loss — supported investment in dairy manufacturing facilities in Kansas and smaller projects in New Mexico and Nebraska, according to the Kansas City Fed.
Labor markets showed further strain. A Maryland construction company implemented a 35% pay increase to retain workers, while an owner of an energy installation company told the Minneapolis Fed it was difficult to explain to employees that margins were too slim to absorb additional wage demands. Conversely, a services firm in the Cleveland Fed's district reduced top staff salaries by 10% as part of broader cost-cutting.
The Beige Book mentioned the word "inflation" 17 times, down from 18 mentions in the mid-July report. The Federal Reserve has kept its benchmark interest rate in the 3.50%–3.75% range since December, and inflation measured by the Personal Consumption Expenditures Price Index has run above its 2% target for roughly five and a half years.
Financial markets are pricing about a 65% chance of a rate hike in September, with a 35% probability of a continued hold, according to CME Group data. Five of the Fed's 19 policymakers have stated they believe a rate increase is overdue. New York Fed President John Williams told CNBC on Wednesday that "we just have to keep watching." The Federal Open Market Committee is scheduled to meet September 15–16.
