The Federal Reserve's Beige Book, gathered before September's hot inflation report, describes an economy where price pressure is broad and activity is thin. Businesses expect another round of increases as contracts reset, while customers push back.
Count the districts and the Fed's problem comes into focus.
In the Beige Book released Wednesday afternoon, three of the Federal Reserve's 12 regional banks described price growth as robust and eight as moderate. Only one called it modest. On activity, the tally ran the other way: two districts saw moderate growth, while the other ten reported modest, slight or no expansion. Eleven districts with at least moderate inflation, two with at least moderate growth.
The report reflects information gathered through Oct. 5, more than a week before the consumer price index showed core inflation running a tenth of a point hotter than forecast. The two documents tell the same story from different angles.
Energy everywhere
Oil was the common thread. Every district report mentioned higher oil prices. Diesel came up repeatedly, with businesses describing surcharges being tacked on at each step from supplier to customer. The Kansas City bank said rising diesel and shipping costs were a top concern for its contacts, and Boston contacts warned about the winter bill for home heating oil.
Four districts said price increases had accelerated since the last survey. Commodities, tariffs and insurance were also cited as cost drivers, and health care costs were a growing worry for businesses in the St. Louis district.
The reset ahead
The forward-looking detail may matter most for policymakers. Contacts in several districts expect to raise prices again as contracts roll over and they renegotiate hedges on their own inputs and delivery terms with customers. That is a built-in lag: costs locked in months ago come due at today's higher levels, which could keep measured inflation firm even if fuel prices level off.
Customers resisting
Demand looked tired. Spending was roughly flat in most regions, and auto sales were flat or lower in five of the six districts that discussed them. In more than half the districts, spending was driven by high-income households. Dallas, despite solid retail sales, heard that lower-income shoppers were "more cautious with spending."
That leaves consumer-facing businesses squeezed. Rather than pass on the full increase in costs, many are raising prices selectively, offering targeted discounts or reworking menus to cut their own expenses, and margins are narrowing as a result.
Hiring on hold
Employment was little changed across the system. In five districts, some employers trimmed headcount through attrition, postponed hiring or planned fewer new jobs because AI investments had raised productivity. Workers, meanwhile, are asking for cost-of-living raises, and Boston staffing contacts said workers were motivated to seek new jobs because pay had lagged prices.
Market implications
For those arguing for another rate increase, the 11-to-2 split is the point: price pressure is widespread, accelerating in a third of districts, and set to get another push from contract renewals. For those arguing to wait, the same report shows soft spending, flat hiring and price-sensitive customers resisting increases, conditions that tend to cool inflation on their own.
What to watch
The discriminating test arrives Thursday. Producer prices will show whether input costs are still climbing, and retail sales will show whether consumers kept spending into September. Strong producer prices with weak retail sales would confirm the margin squeeze the Beige Book describes. The Fed meets Oct. 27 and 28.