Federal Reserve Beige Book: Economy Taken Over by Waller Is Under Inflationary Pressure, Stagflation Signs Emerge

(1) The Federal Reserve Beige Book shows that from late April to late May, most regions in the United States experienced rising inflation due to increased energy costs caused by the Iran war, which spread to shipping, packaging, groceries, and fertilizers. There are signs of weakening consumer spending: increased credit card usage, reduced retail foot traffic, and stronger demand for essentials. Various industries are showing a “stagflation” combination—weak demand combined with cost pressures.(2) Dallas Federal Reserve President Logan stated growing concerns that an interest rate hike may be needed later this year. Interest rate futures indicate that traders assign about a 75% probability to a 25 basis point rate hike to 3.75%-4.00% by the end of the year. Walsh will chair his first policy meeting as Federal Reserve Chair in two weeks.(3) The Beige Book noted that the construction of AI data centers is driving moderate economic growth and investment demand, but inflationary pressures persist: rising gasoline prices are prompting consumers to switch to hybrid vehicles or reduce car purchases; energy costs are pushing up fertilizer prices, with New York apple growers expecting lower yields; and manufacturing companies are experiencing weaker demand due to consumer caution. Some young workers are experiencing hiring slowdowns due to AI applications.