Latest news with #ClevelandFed
Yahoo
5 days ago
- Business
- Yahoo
US economic activity declines as tariffs pressure prices, Fed says
By Ann Saphir (Reuters) -U.S. economic activity has declined and higher tariff rates have put upward pressure on costs and prices in the weeks since Federal Reserve policymakers last met to set interest rates, the U.S. central bank said on Wednesday in its latest snapshot of the nation's economy. "On balance, the outlook remains slightly pessimistic and uncertain, unchanged relative to the previous report," according to the document, known as the "Beige Book" and which is based on surveys, interviews and observations collected from the commercial and community contacts of each of the Fed's 12 regional banks through May 23. "There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward." The Fed has kept its policy rate in the current 4.25%-4.50% range since December and is widely expected to leave it there for another few months while its policymakers gauge the impact of U.S. President Donald Trump's trade and other policies on inflation and the labor market. Analysts and Fed policymakers alike say they anticipate both the inflation and the labor market data to deteriorate, and the Beige Book suggests it is already happening, if still unevenly. In January, all 12 Fed districts reported economic growth; the latest report showed just three did, while half reported economic declines. Contacts generally expected so-far moderate price increases to accelerate, with a few describing the expected cost increases as "strong, significant, or substantial." "A number of businesses reported they were no longer stocking goods whose higher prices were becoming infeasible," the New York Fed reported, adding that one florist said it was "adjusting flower varieties based on rapidly changing costs by source country." The New York Fed was one of the regions where economic activity declined modestly. Tariffs remained a rising concern, along with uncertainty, impacting in particular prices but also expectations for growth. "In some cases, firms explicitly included a separate tariff line for items or contingencies in their price quotes and contracts," said the San Francisco Fed, where economic activity was reported to have slowed. "One contact observed that price increases that had been implemented in anticipation of certain tariffs were not rolled back once those tariffs were removed." The Cleveland Fed reported consumer spending had flattened out, with contacts saying it was hard to forecast demand because of trade policy uncertainty. "Many auto dealers reported an increase in purchases ahead of planned tariffs, and one dealership expected tariff-related sticker shock to hit customer demand starting in early June," the Cleveland Fed wrote. "Retailers reported a general pullback in consumer discretionary spending, although one retailer benefited from customers who traded down from larger discretionary purchases to more modest ones." To the Boston Fed, the outlook was characterized "by a mix of cautious optimism and blunt pessimism," with optimists focused on "the possibility that resolution of uncertainty could unlock economic activity moving forward; the more pessimistic contacts, in contrast, emphasized the potential negative impacts on demand from tariffs and other federal policies." Meanwhile most districts reported employment as "flat," but impacts appeared to vary by industry, and location. As Richmond Fed reported, "a Maryland construction company planned on increasing employment due to available work and a fast-casual restaurant decided to move ahead with adding locations, thus increasing employment. Conversely, a different fast-casual restaurant located in the DC-region paused all hiring due to local economic uncertainty." NATIONAL DATA The Beige Book offers a counterpoint to the national hard economic data, which Fed policymakers say show a solid labor market and continued improvement in inflation. The Personal Consumption Expenditures Price Index rose just 2.1% in April from a year earlier, the lowest reading in four years and just a hair above the Fed's 2% inflation target. Economists expect data due on Friday to show U.S. employers added 130,000 jobs last month, down from 177,000 in April but still above the 100,000 or so thought to be adequate for a healthy labor market. But Fed officials say they are putting a premium on more timely data, including the day-to-day experiences of businesses and households like those captured in the Beige Book. Other survey-based data show that deterioration as well, including an Institute for Supply Management report earlier on Wednesday that showed the service sector contracted in May for the first time in a year, and businesses paid more for inputs. The specter of slowing growth and accelerating inflation poses a particular dilemma for the Fed, which can only fight one of those problems at a time. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
- Business
- Yahoo
US economic activity declines as tariffs pressure prices, Fed says
By Ann Saphir (Reuters) -U.S. economic activity has declined and higher tariff rates have put upward pressure on costs and prices in the weeks since Federal Reserve policymakers last met to set interest rates, the U.S. central bank said on Wednesday in its latest snapshot of the nation's economy. "On balance, the outlook remains slightly pessimistic and uncertain, unchanged relative to the previous report," according to the document, known as the "Beige Book" and which is based on surveys, interviews and observations collected from the commercial and community contacts of each of the Fed's 12 regional banks through May 23. "There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward." The Fed has kept its policy rate in the current 4.25%-4.50% range since December and is widely expected to leave it there for another few months while its policymakers gauge the impact of U.S. President Donald Trump's trade and other policies on inflation and the labor market. Analysts and Fed policymakers alike say they anticipate both the inflation and the labor market data to deteriorate, and the Beige Book suggests it is already happening, if still unevenly. In January, all 12 Fed districts reported economic growth; the latest report showed just three did, while half reported economic declines. Contacts generally expected so-far moderate price increases to accelerate, with a few describing the expected cost increases as "strong, significant, or substantial." "A number of businesses reported they were no longer stocking goods whose higher prices were becoming infeasible," the New York Fed reported, adding that one florist said it was "adjusting flower varieties based on rapidly changing costs by source country." The New York Fed was one of the regions where economic activity declined modestly. Tariffs remained a rising concern, along with uncertainty, impacting in particular prices but also expectations for growth. "In some cases, firms explicitly included a separate tariff line for items or contingencies in their price quotes and contracts," said the San Francisco Fed, where economic activity was reported to have slowed. "One contact observed that price increases that had been implemented in anticipation of certain tariffs were not rolled back once those tariffs were removed." The Cleveland Fed reported consumer spending had flattened out, with contacts saying it was hard to forecast demand because of trade policy uncertainty. "Many auto dealers reported an increase in purchases ahead of planned tariffs, and one dealership expected tariff-related sticker shock to hit customer demand starting in early June," the Cleveland Fed wrote. "Retailers reported a general pullback in consumer discretionary spending, although one retailer benefited from customers who traded down from larger discretionary purchases to more modest ones." To the Boston Fed, the outlook was characterized "by a mix of cautious optimism and blunt pessimism," with optimists focused on "the possibility that resolution of uncertainty could unlock economic activity moving forward; the more pessimistic contacts, in contrast, emphasized the potential negative impacts on demand from tariffs and other federal policies." Meanwhile most districts reported employment as "flat," but impacts appeared to vary by industry, and location. As Richmond Fed reported, "a Maryland construction company planned on increasing employment due to available work and a fast-casual restaurant decided to move ahead with adding locations, thus increasing employment. Conversely, a different fast-casual restaurant located in the DC-region paused all hiring due to local economic uncertainty." NATIONAL DATA The Beige Book offers a counterpoint to the national hard economic data, which Fed policymakers say show a solid labor market and continued improvement in inflation. The Personal Consumption Expenditures Price Index rose just 2.1% in April from a year earlier, the lowest reading in four years and just a hair above the Fed's 2% inflation target. Economists expect data due on Friday to show U.S. employers added 130,000 jobs last month, down from 177,000 in April but still above the 100,000 or so thought to be adequate for a healthy labor market. But Fed officials say they are putting a premium on more timely data, including the day-to-day experiences of businesses and households like those captured in the Beige Book. Other survey-based data show that deterioration as well, including an Institute for Supply Management report earlier on Wednesday that showed the service sector contracted in May for the first time in a year, and businesses paid more for inputs. The specter of slowing growth and accelerating inflation poses a particular dilemma for the Fed, which can only fight one of those problems at a time.
CNBC
6 days ago
- Business
- CNBC
Former Cleveland Fed President Mester: The Fed should be waiting right now
Former Cleveland Fed President Loretta Mester joins 'Squawk Box' to discuss the challenges facing the Federal Reserve, state of the economy, rate path outlook, and more.
Free Malaysia Today
29-05-2025
- Business
- Free Malaysia Today
US Fed expected to pause rate cuts again, await clarity on tariffs
Survey data showed rising inflation expectations, suggesting tariff pressures may have taken hold despite stable market indicators. (Reuters pic) WASHINGTON : The US Federal Reserve is widely expected to extend a recent pause in rate cuts this week as it waits to see how President Donald Trump's stop-start tariff rollout affects the health of the world's largest economy. Trump has imposed steep levies on China, and lower 'baseline' levies of 10% on goods from most other countries, along with 25% duties on specific items like steel, automobiles and aluminum. The president has also paused higher duties on dozens of other trading partners until July to give them time to renegotiate existing arrangements with the US. Most economists expect the tariffs introduced since January to push up prices and cool economic growth – at least in the short run – potentially keeping the Fed on hold for longer. 'The Fed has to be very focused on maintaining inflation so that it doesn't start moving back up in a more persistent way,' said Loretta Mester, who recently stepped down after a decade as president of the Cleveland Fed. 'That would undermine all the work that was done over the last three years of getting inflation down,' she told AFP. 'Good place to be' Trump reiterated his call for Fed chair Jerome Powell to lower rates in an NBC interview published in full on Sunday, claiming the decision not to do so was largely personal. 'Well, he should lower them. And at some point, he will. He'd rather not because he's not a fan of mine,' Trump said. The Fed has held its key interest rate at between 4.25% and 4.50% since December, as it continues its plan to bring inflation to the bank's long-term target of 2%, with another eye firmly fixed on keeping unemployment under control. Recent data points to the Fed's inflation remaining broadly on track ahead of the introduction of Trump's 'Liberation Day' tariffs, while unemployment has remained relatively stable, hugging close to historic lows. At the same time, various 'softer' data points such as consumer confidence surveys have reflected a sharp decline in optimism about the health of the US economy – and growing concerns about inflation. 'Whether the economy enters a recession or not, it's hard to say at this point,' said Mester, now an adjunct professor of finance at the Wharton School of the University of Pennsylvania. 'I think the committee remains in good condition here, and most likely they'll remain on hold at this meeting,' said Jim Bullard, the long-serving former president of the St Louis Fed. 'I think it's a good place for them to be while there's a lot of turbulence in the trade war,' added Bullard, now dean of the Daniels School of Business at Purdue University. Financial markets overwhelmingly expect the Fed to announce another rate-cut pause on Wednesday, according to data from CME Group. Pushing back rate cuts US hiring data for April published last week came in better than expected, lowering anxiety about the health of the labor market – and reducing pressure on the Fed's rate-setting committee to reach for rate cuts. Economists at several large banks including Goldman Sachs and Barclays subsequently delayed their expected date for rate cuts from June to July. 'Cutting in late July allows the committee to see more data on the evolution of the labor market, and should benefit from resolving uncertainty about tariffs and fiscal policy,' economists at Barclays wrote in a note to clients published Friday. Other analysts see rate cuts happening even later, depending on the effects of the tariffs. 'A slower reaction to economic weakness' could happen 'if backward-looking data gives the impression of resilient demand while inflation gauges heat up,' wrote EY Chief Economist Gregory Daco. The rise in longer-run inflation expectations in the survey data points to growing concerns that tariff-related price pressures could become embedded in the US economy – even as the market-based measures have remained close to the Fed's 2% target. 'I would be sort of in the camp (saying) prove to me that they're not going to be inflationary,' Mester said of tariffs, adding that it would be 'unwise' to assume that inflation expectations were stable, given the recent survey data. But Bullard from Purdue took a different view, stressing the stability of the market-based measures. 'I haven't liked the survey-based measures of inflation expectations, because they seem to be partly about inflation but partly about many other issues, maybe, including politics,' he said. 'This is a moment where you might want to look through the survey-based measures that are talking about very extreme levels of inflation that don't seem likely to develop near-term,' he added.
Axios
20-05-2025
- Business
- Axios
Exclusive: Cleveland Fed official's three scenarios for tariff-hit economy
The traditional way to approach projecting the economy is to describe a baseline scenario — what seems like the most likely trajectory — with risks on either side. That may not be the best way to think of the outlook right now, a top Fed official tells Axios. The big picture: With uncertainty around both what trade and other policy changes will bring, and how they will affect employment and inflation, Cleveland Fed president Beth Hammack is thinking about a range of distinct economic scenarios, rather than one base case. She and other leaders of the central bank will submit their projections for GDP, inflation, interest rate policy and more next month. It's an especially fraught time to be doing so, given complex policy crosscurrents around trade, tax and other policies. The so-called Summary of Economic Projections will be published when the Fed's next two-day meeting concludes on June 18. What they're saying:"I'm grateful that I have four weeks to work on coming up with a modal case, because right now I haven't really been operating with a base case," Hammack said. "I've been operating in a couple different scenarios." "To come up with a modal case that you have a lot of confidence in, I think at this particular moment is going to be really challenging," Hammack says. Scenario 1: Tariffs have a one-off price effect, but economic growth takes a hit from policy uncertainty. The possibility that tariffs bring up price levels, but don't do so consistently, results in a one-time increase in prices. But Hammack says this might come alongside a "tremendous amount of uncertainty that weighs on economic activity," with growth declining and the labor market falling off. "In that situation, we'd want to be attentive to the employment side of our mandate and potentially ease policy — and potentially very quickly, if we had the evidence that this is what was happening," she says. Scenario 2: The labor market holds up, but tariffs are inflationary. It's possible that businesses hold the line on their workforces, a pandemic-era fear that they might not be able to replace staff when the economy bounces back. "Because it took them so long and it was so difficult to hire and train their staff over the past several years, it could be the case that they hold on to people for a really long time," Hammack says. She adds that in this scenario, price pressures from tariffs become sticky because of the way the levies have been rolled out. "It becomes more persistent and more inflationary because the tariffs are layered in — the announcement, the withdrawal, and then the possibility of new announcements," Hammack says. Scenario 3 is what Hammack sees as most likely: a stagflationary outcome where the economy slows alongside higher inflation. "That's where it's really difficult for monetary policy," Hammack says. "We're going to have to have good insights and good understanding of how much we're missing each side of the mandate and how long those misses persist — and then we can decide what the right course of action is." Yes, but: Hammack says there are other factors — including the White House tax bill or its deregulatory efforts — that complicate the forecast.
