US economic activity up but outlook pessimistic, Fed says

Businesses report tariffs causing upward pressure on prices Fed report says employment slightly rose, hiring decisions postponed due to uncertainty US central bank expected to maintain current policy rate until at least September By Ann Saphir July 16 (Reuters) - U.S. economic activity increased slightly in recent weeks, but the outlook was neutral to slightly pessimistic, the Federal Reserve said on Wednesday, as businesses reported the Trump administration’s higher tariffs were putting upward pressure on prices. “Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer,” according to the Fed’s “Beige Book” report, which was based on surveys, interviews and observations collected from the commercial and community contacts of each of the U.S. central bank’s 12 regional banks through July 7. Employment increased very slightly, the Fed said, and “many contacts expected to postpone major hiring and layoff decisions until uncertainty diminished.” Fed policymakers have kept their policy rate in the current 4.25%-4.50% range since December and are widely expected to leave it there at least until September as they wait to see how the economy responds to trade and other policy changes under President Donald Trump. The president has demanded the Fed cut rates immediately, and a couple of Fed policymakers have said they’d consider it as soon as the July 29-30 meeting to head off any further labor market weakening. Most U.S. central bankers, however, believe the job market remains solid despite some signs of cooling, like a recent rise in continuing unemployment claims and a slowdown in job growth, and are unwilling to lower rates when they expect the highest import duties in decades will drive up prices in coming months and potentially undo hard-won progress on inflation. In a sign that process is underway, U.S. consumer prices increased by the most in five months in June, with the prices of some largely imported goods including apparel, home furnishings, toys and sporting goods driving the rise. But wholesale prices for June came in on the soft side, and economists now estimate the June reading for the core Personal Consumption Expenditures Price Index - which the Fed tracks to gauge progress toward its 2% inflation target - will be 2.7%, no higher than in May. Dallas Fed President Lorie Logan is among U.S. central bank officials who say they expect it to take into the fall before the data show the impact of tariffs on inflation more clearly; Boston Fed President Susan Collins and others have said it may turn out that tariffs won’t boost inflation as much as feared. To figure out exactly what may happen, Fed policymakers say they are paying special attention to the day-to-day experiences of people and businesses like those highlighted in the Beige Book.