Mostly Solid Beige Book Hints at Inflation, Pressure to Raise Interest Rates

National economic activity expanded moderately in late February and March, according to the Federal Reserve’s latest report on current economic conditions in its 12 districts, known as the Beige Book.

Consumer spending, business spending and tourism each saw growth in most districts, while labor conditions strengthened, the Fed reported. Likewise, demand for nonfinancial services expanded and manufacturing activity, construction and real estate activity grew in most districts. On net, credit conditions improved, and overall, prices rose modestly in a majority of districts as input cost pressures continued to ease.

Still, “low prices weighed on energy and mining output as well as prospects for agricultural producers,” Federal Reserve officials reported.

“It seems that all 12 of the districts are reporting that wages are going up,” said Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence. “This is good news for the wage earners of course, but the bigger issue for the Fed is that this may well be the first real sign of an inflation build and that will impact the way the Fed talks about interest rates in the months ahead.”

- Nicholas Stern, NACM editorial associate

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