By Howard Schneider and Ann Saphir <\/p>\n
WASHINGTON, July 10 (Reuters) – U.S. inflation “stepped up further this spring” as the evolving impact of tariffs, a war-related rise in energy costs, and the booming artificial intelligence buildout boosted price pressures that took root last year, the Federal Reserve said on Friday in a monetary policy report \u200cto Congress. <\/p>\n
“Inflation has risen this year and remains elevated relative to the Federal Open Market Committee’s longer-run objective of 2%,” with the most recent data showing the U.S. \u200ccentral bank’s preferred Personal Consumption Expenditures Price Index running about double that rate as of May, the report said. <\/p>\n
By contrast, “the labor market has stabilized, with demand and supply roughly in balance,” and the June unemployment rate of 4.2% \u200bstill “low,” the Fed report said while noting the shifting demographic and hiring trends that are helping keep it that way. <\/p>\n
Job vacancies have been “flat,” the report noted, layoffs have been similarly “subdued,” and the labor force itself \u2014 the pool of people available to work and contribute to economic output \u2014 has stagnated. <\/p>\n
“A marked slowdown in immigration and ongoing declines in labor force participation due to the aging of the population led to a slowdown in labor supply growth,” the document said. <\/p>\n
On the whole, though, the report concluded that the economy’s potential was “rising at a solid pace as historically subdued growth in the labor \u200cforce has been offset by strong growth in labor productivity.” <\/p>\n
Overall economic \u2060growth was “moderate” through the first months of 2026, with gross domestic product expanding at a 2.1% annual pace, supported by booming AI investment but held back by a “stagnant” housing market and only modest gains in household consumption. <\/p>\n
The report to Congress is the first issued under new Fed Chairman \u2060Kevin Warsh, who is set to appear before committees in the U.S. House of Representatives and Senate next Tuesday and Wednesday, respectively, in what are supposed to be twice-a-year congressional reviews of monetary policy. The usual spring hearing was delayed amid controversy between former Fed Chair Jerome Powell and President Donald Trump, with Warsh taking over in late May after Powell’s term as head of the central bank ended. <\/p>\n
The Fed \u200bhas \u200bheld interest rates steady since December, but concerns about inflation, particularly since the start of the U.S.-Israeli war \u200bwith Iran in late February, have led investors to anticipate rate increases \u200clater this year. While Warsh does not like to talk about expected policy outcomes, his colleagues at the June 16-17 meeting issued projections showing an even divide among those anticipating rate increases this year, and those expecting the policy rate could stay steady or fall. <\/p>\n
REPORT MENTIONS MONEY SUPPLY <\/p>\n
The mention of AI as an inflation driver, at least in the near term, is notable. Warsh has looked to the technology as a source of lower inflation, given its likely boost to productivity, but has lately acknowledged the timing of those productivity and supply-side gains is uncertain while the demand for electricity, specialized chips and other materials involved in the buildout is continuing. <\/p>\n
The report pointed to other themes Warsh has emphasized, including the first mention of the size \u200cof the money supply since 2016. Growth in the money supply has in recent decades been downplayed as \u200ba driver of inflation, but the experience of the COVID-19 pandemic, when large government transfer payments to households supercharged \u200bdemand at a time of global supply constraints, has prompted a rethink. During \u200bhis Senate confirmation hearing in April, Warsh said he felt inflation “comes about when the government prints too much … spends too much.” <\/p>\n
In a section on “M2” \u2014 a \u200cmeasure of circulating money made up of cash, and cash-like deposits including \u200bretail money market funds \u2014 the report noted that \u200bannual growth had returned to levels “typically observed in the 2010s.” It said “the sizable increase in the public’s holdings of real money balances that took place during the pandemic has largely been unwound” \u2014 a possible reason to think inflation will be restrained. The Fed through the 2010s struggled with inflation that was persistently below its target. <\/p>\n
In a section on \u200bmonetary policy rules, which Warsh has referred to as “aspirational,” the report \u200cnoted that a variety of policy prescriptions currently point to the need for rate hikes \u2014 but then cautioned against taking that advice to heart. <\/p>\n
“The prescriptions shown \u200bhere ignore that the economy would have evolved differently if the policy rate had followed one of the paths prescribed by the rules, and, hence, these \u200bprescriptions should be interpreted with care,” the report stated. <\/p>\n
(Reporting by Howard Schneider; Editing by Paul Simao) <\/p>\n","protected":false},"excerpt":{"rendered":"By Howard Schneider and Ann Saphir WASHINGTON, July 10 (Reuters) – U.S. inflation “stepped up further this spring”…\n","protected":false},"author":3,"featured_media":926280,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[12],"tags":[64,79,6244,1597,373683,266,142,75621,2180,324843,67,132,68],"class_list":["post-926279","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-federal-open-market-committee","tag-federal-reserve","tag-howard-schneider","tag-inflation","tag-jerome-powell","tag-kevin-warsh","tag-labor-force","tag-labor-productivity","tag-united-states","tag-unitedstates","tag-us"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/116897687121550357","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/926279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=926279"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/926279\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/926280"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=926279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=926279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=926279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}