US economic activity rises modestly, inflation pressures persist: Fed Beige Book

U.S. economic activity increased modestly in recent weeks, while employment edged higher and prices continued to rise moderately, according to the Federal Reserve's latest Beige Book, offering a mixed picture ahead of its September 15-16 policy meeting, Reuters reported.

The report, based on information collected through August 24 from the Fed's 12 regional districts, is unlikely to provide a clear signal on the central bank's next move as policymakers weigh persistent inflation against signs of a cooling economy.

Read more: US Market: Tech stocks challenge Wall Street’s traditional bear market definition


Inflation Remains a Concern

Price increases slowed in three Fed districts, accelerated in one and were unchanged in eight. Businesses across several regions reported higher costs for energy, transportation and raw materials, while tariff-related pressures and rising healthcare and insurance costs also remained concerns.

According to Reuters, consumer-facing businesses reported greater price sensitivity among customers, limiting their ability to pass higher costs on to consumers.

Inflation has remained above the Fed's 2% target for more than five years, keeping price pressures at the center of the policy debate.

Fed Rate Decision in Focus

The Fed kept its benchmark interest rate at 3.50%-3.75% at its July meeting, where it has remained since December. Policymakers remain divided over whether inflation has eased enough to justify keeping rates unchanged.

Reuters reported that financial markets were pricing about a 65% probability of a rate hike at the September meeting, compared with a 35% chance of a hold.

Higher energy prices linked to renewed Middle East tensions have added another complication, potentially pushing inflation higher in the months ahead.

Labor Market and Housing Show Mixed Signals

Employment rose slightly, but wage pressures remained uneven. Some sectors, including construction and manufacturing, continued to face labor shortages, while others reported weaker hiring conditions and more restrained wage growth.

The housing market remained a weak spot, with several districts reporting slower sales, rising inventories and longer listing times as consumers faced high mortgage rates and inflation.

The Beige Book also highlighted the growing impact of artificial intelligence, with strong demand for data centers and defense-related construction offsetting weaker activity elsewhere.

Outlook Remains Uncertain

Overall, the report showed an economy still expanding but facing persistent inflation risks and pockets of weakness. Reuters noted that the Beige Book alone is unlikely to settle the Fed's September rate debate, leaving investors focused on upcoming inflation and labor-market data for clues about the central bank's next move.