'Data center, defense demand underpins manufacturing activity'

Markets price in 62% chance of rate hike ahead of September FOMC

The Federal Reserve building [Reuters]
The Federal Reserve building [Reuters]

The US economy expanded at a modest pace since early July and prices rose at a broadly moderate rate, the Federal Reserve said Wednesday (local time).

Demand tied to data centers and defense supported manufacturing activity, the Fed said, while uncertainty grew around elevated energy prices and the war involving Iran.

In its Beige Book economic conditions report released that day, the Fed said 10 of its 12 regional Federal Reserve Banks reported slight to moderate growth, while two reported no change.

Employment rose "very slightly" and prices increased at a "moderate" pace, the report said.

"The overall outlook for the next few months was positive, though sentiment varied by sector," the Fed said, adding that business contacts reported heightened uncertainty over the effects of elevated energy prices, policy and international conflicts.

The Beige Book is a summary of economic conditions compiled by the 12 regional Fed banks through contacts with banks, businesses and experts in their districts. It is typically released two weeks before each Federal Open Market Committee meeting, where monetary policy decisions are made.

The data for this edition were collected through Aug. 24, ahead of the September FOMC meeting scheduled for Sept. 15-16.

Manufacturing activity increased in most regions, with orders related to defense and data centers particularly prominent.

Both positive and negative effects of AI on labor demand were also reported.

On the consumer side, spending on high-end products remained solid, though consumers showed greater sensitivity to prices.

Analysts said the latest Beige Book does not appear to tilt the balance decisively in either direction for the September rate decision.

Markets are currently pricing in roughly a 62% probability of a rate hike and about a 38% chance of a hold.

Fed Chair Kevin Warsh said last week that he would keep the door open to raising rates if he was not convinced that inflation was falling toward the Fed's 2% target at a "clear and sufficient pace."


mokiya@heraldcorp.com