United States economic activity has increased and employment has remained stable in recent weeks, the Federal Reserve said Wednesday, in a report that also noted notable impacts from a rise in energy prices amid the ongoing war in Iran.
“The conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making regarding hiring, pricing and capital investment, with many companies taking a wait-and-see stance,” the U.S. central bank said in its latest “Beige Book” report.
“Business prospects varied amid widespread uncertainty about future conditions,” the report said.
The Fed is expected to keep its benchmark interest rate in the current range of 3.50% to 3.75% at its next policy meeting on April 28-29.
Price growth “remained moderate overall,” according to the report, which is based on surveys and interviews with business leaders and community organizations in all 12 Fed districts.
Higher energy costs mean more expensive transportation and higher costs for plastics and fertilizers, the report said, adding that “pressures on input costs beyond energy-related increases were also widespread.”
Information in the latest report was collected through April 6 and captures the unstable economic climate since Iran’s closure of the Strait of Hormuz halted shipments of about a fifth of the world’s oil shipments and about a third of fertilizer shipments.
The average price of gasoline in the U.S. has jumped to more than $4 a gallon, retail diesel prices have risen to more than $5.60 a gallon, and fertilizer prices have also increased sharply.
The previous Beige Book, which reported general optimistic expectations for economic growth and an expectation that the pace of price increases would slow, was completed before the outbreak of the latest hostilities in the Middle East on February 28.
Inflation outlook
Fed policymakers say they generally “look beyond” temporary increases in commodity prices, and many say they still expect goods inflation from last year’s tariff shocks to ease later this year, a development that would allow them to resume cutting interest rates.
At the same time, inflation has remained above the Fed’s 2% target for more than five years. The latest data has economists estimating a jump last month not just in overall inflation but also in “core” inflation, which excludes energy and food prices, which policymakers use to gauge future inflationary pressures.
Monetary policymakers largely view the U.S. labor market as stabilizing, with slowing job growth balanced by a shrinking labor force amid a sharp decline in immigration.
Unemployment fell last month to 4.3%.
The Beige Book noted that wage competition generally remained “muted”, suggesting that the labor market was not adding to inflationary pressures.
