U.S. Fed Sees Price Increases Tied to Middle East Turmoil

The Federal Reserve System (Fed), which changed leadership last month, released its Beige Book ahead of its first benchmark interest rate decision under the new leadership. The Fed said it had observed price increases in the United States linked to the conflict in the Middle East. The Trump administration said the phenomenon is temporary.
According to The Wall Street Journal (WSJ), the Fed released its June Beige Book on its website on the 3rd (local time) and pointed to rising prices and uncertainty. The Fed said, "Higher energy costs linked to the Middle East conflict are a major source of price pressure, and the effects are spreading to shipping, packaging, groceries and fertilizer." It also said, "Concerns and uncertainty among consumers about higher fuel prices were reported in several regions." The Personal Consumption Expenditures Price Index (PCE Price Index), the Fed's main inflation gauge for rate decisions, rose 3.8% in April from a year earlier, marking the largest increase since 2023.
The Beige Book is a report on economic conditions in the 12 regions overseen by the Federal Reserve Banks under the Fed. It is based on analysis gathered through contacts with regional banks, companies and experts. Overall U.S. economic activity was found to have increased moderately in 10 of the 12 regions. However, even as growth continues amid rising costs, companies are worried about weakening consumer sentiment.
The Fed said, "Companies reported little change in their six-month outlook for the economy, citing heightened uncertainty and signs of weaker consumer spending."
In addition, both hiring and layoffs were observed to be slowing across most U.S. regions. The Fed said, "Hiring remained selective and focused mainly on essential roles or replacements for natural attrition." In manufacturing, hiring rose sharply on stronger demand from the defense industry and data centers.
This Beige Book is the first report released since Kevin Warsh took office as the new Fed chair last month. Warsh will preside over his first Federal Open Market Committee (FOMC) meeting on the 16th and 17th. Markets expect the Fed to hold the benchmark rate steady at 3.5% to 3.75% at this meeting, citing inflation concerns. That would mark the fourth consecutive hold this year.
Relatedly, U.S. Treasury Secretary Scott Bessent appeared before the United States Senate Committee on Finance on the 3rd and discussed inflation. He said, "Excluding inflation, the economic indicators are very strong. I believe inflation will be a 'short-term temporary phenomenon.'" He added, "We have all the conditions needed to build a very strong economy. Prices are temporarily high, but I think they will eventually come back down." Park Jong-won