US labour market remains stuck in low-hire, low-fire state as inflation intensifies: Fed

The US labour market remained in a low-hire, low-fire state while inflationary pressures intensified across parts of the country in recent weeks, according to a Federal Reserve report released on Wednesday, highlighting the challenges facing policymakers as they consider another interest rate hike later this month, Reuters reported.

The Fed's latest Beige Book, which compiles business surveys and economic assessments from its 12 regional banks, showed that economic activity was expected to grow modestly in much of the country. However, persistent uncertainty continued to weigh on the outlook, with manufacturing emerging as a relative source of strength.

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According to Reuters, businesses reported mounting cost pressures from higher diesel prices, with fuel surcharges pushing higher expenses through supply chains. Several districts also reported continued inflationary pressure from commodities, tariffs and insurance costs.

Three of the Fed's 12 districts described price growth as robust, while eight reported moderate increases. Three districts also indicated that inflationary pressures were intensifying, the report showed.

The findings come as the central bank weighs the need for further monetary tightening following stronger-than-expected consumer inflation data. The Fed raised its benchmark interest rate by 25 basis points last month to a range of 3.75% to 4.00%, with policymakers indicating that another increase could be necessary this year, potentially in December.

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Financial markets have also begun pricing in the possibility of an earlier move. According to Reuters, traders were assigning about a 37% probability to a rate hike at the Fed's October 27-28 meeting after inflation data released on Wednesday exceeded expectations.

US inflation accelerates

Consumer prices in the United States rose 3.7% in the 12 months through September, significantly above the Fed's 2% inflation target and higher than economists' consensus forecast in a Reuters poll.

Higher gasoline prices linked to the war in the Middle East were a major contributor to the increase. Rapidly rising software and toy prices also highlighted the potential effects of artificial intelligence-driven demand and higher tariffs under President Donald Trump's trade policies.

The latest Beige Book suggests that businesses continue to face cost pressures even as hiring and job separations remain subdued. The combination of persistent inflation and a relatively stagnant labour market complicates the Fed's efforts to balance price stability with employment conditions.

Rising borrowing costs add to household pressure

Higher interest rates are also increasing the financial burden on American households, particularly prospective homebuyers.

The average rate on a 30-year fixed-rate mortgage climbed to 7.5% last week, its highest level in nearly three years, according to data from the Mortgage Bankers Association released on Wednesday.

The economic backdrop also carries political implications ahead of the November 3 midterm elections, which will determine whether Trump's Republican Party retains control of Congress. The cost of living was the leading concern among voters in a recent Reuters/Ipsos poll.

The Fed's latest assessment underscores the difficult policy choices facing officials as they confront persistent inflation, elevated borrowing costs and limited momentum in the labour market. Stronger than expected price data could increase pressure for another rate increase, although the timing and extent of further tightening will depend on incoming economic evidence.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)