Performance of the U.S. economy remains dismal, according to the Federal authorities
The Slightly Souring U.S. Economic Picture, According to the Fed
The economic landscape in the United States is showing signs of a minor downturn, as suggested by the Federal Reserve's (Fed) latest "Beige Book" report. This report, which drops every Wednesday, is compiled from surveys and data from the Fed's 12 regional branches.
In a nutshell, the economic climate continues to grapple with a touch of gloom, no change from the previous report's assessment. This gloom stems from escalating economic and political uncertainty, primarily due to the international trade conflict fueled by U.S. President Donald Trump. This uncertainty has resulted in businesses and households adopting a cautious stance.
Since the previous report was published in April, prices have inched up moderately, according to the Fed. However, several districts expect costs and prices to rise more swiftly in the near future. These anticipated price hikes are described as strong, significant, or substantial in the "Beige Book". All district reports point to increased pressure on costs and prices due to tariffs.
Wall Street investors seemed impervious to the report's revelations. Major indices on the stock market, gold, U.S. Treasury securities, and the dollar index barely budged.
The U.S. economy contracted at the start of the year, with Gross Domestic Product (GDP) dipping by an annualized 0.2 percent in the initial quarter of the year. However, in the fourth quarter of 2024, it expanded by a healthy 2.4 percent. The economic contraction was mainly due to higher imports and lower government spending. Yet, this contraction was partially offset by increased consumer spending, investments, and exports.
The Fed kept the target range for the federal funds rate unchanged, at 4.25 to 4.50 percent. Fed Chair Jerome Powell indicated that the central bank is keen to gather more clarity on how policy changes under U.S. President Trump will influence inflation and the labor market. The next interest rate decision is penciled in for June 18.
More Insights
- Six of the 12 Federal Reserve districts reported slight to moderate declines in activity since the April report[2][5].
- Manufacturing activity declined across the board, contributing to the economy's overall softening[2][5].
- Consumer spending reports were mixed, with some districts witnessing increases in spending on tariff-sensitive items, while others saw slight decreases or no change[2][5].
- Capital spending plans generally decreased, and the outlook for future investments was pessimistic in several districts[1][4].
- Tariffs have led to robust increases in input prices, especially for manufacturers, prompting moderate selling price increases[1][4].
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- The economic downturn, as suggested by the Federal Reserve's latest "Beige Book" report, is causing businesses to adopt a cautious stance, which may have implications for finance.
- The escalating economic and political uncertainty, primarily due to the international trade conflict, has led to robust increases in input prices, especially for manufacturers, emphasis on the finance aspect of businesses.
