Inflation is spreading across the U.S. economy as economic growth slows down, according to the Fed's Beige Book released on Wednesday afternoon.

Compiled by the 12 Federal District banks eight times a year, the Beige Book takes the pulse of businesses around the nation. It's a critical source of information on the state of economic growth, employment and prices and the themes addressed in FOMC meetings that set the nation's monetary policy.

"Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy," says the Beige Book. "There were wide-ranging input cost increases stemming from strong demand for raw materials, logistical challenges, and labor market tightness."

The good news is that some of these input price pressures are moderating in some sectors like semiconductors.

"But wider availability of some inputs, notably semiconductors and certain steel products, led to easing of some price pressures," adds the Beige Book. "Strong demand generally allowed firms to raise prices with little pushback, though contractual obligations held back some firms from increasing prices."

The Fed's finding that inflation is widespread across America follows a previous finding that inflation is "elevated."

"Most Districts reported significantly elevated prices, fueled by rising demand for goods and raw materials," says the previous edition of the Beige Book. "Reports of input cost increases were widespread across industry sectors, driven by product scarcity resulting from supply chain bottlenecks. Price pressures also arose from increased transportation and labor constraints as well as commodity shortages."

The findings of the two recent editions of the Beige Book are in line with several government reports released in recent months, indicating that inflation is turning into a big problem for the U.S. economy. The Producer Price Index (PPI), a measure of inflation at the wholesale or producer level, was running at 8.6% in September and October, the highest level since November 2010.

Then there's the Consumer Price Index (CPI), a measure of inflation at the retail level, which was running at an annual increase of 6.2% in October, the highest since November 1990.

And there's the personal consumption expenditure index (PCE), a measure of how inflation affects consumer budgets, which rose at a monthly rate of 0.6% in October, following a 0.4% advance in September. It was the largest price increase since April.

Meanwhile, economic activity is growing at a moderate rate.

"Economic activity grew at a modest to moderate pace in most Federal Reserve Districts during October and early November," says the Beige Book that was released on Wednesday. "Several Districts noted that despite strong demand, growth was constrained by supply chain disruptions and labor shortages. Consumer spending increased modestly; low inventories held back sales of some items, notably light vehicles."

This assessment of U.S. economic growth is similar to the assessment made in the previous edition of the Beige Book six weeks earlier.

"Economic activity grew at a modest to moderate rate, according to the majority of Federal Reserve Districts. Several Districts noted, however, that the pace of growth slowed this period, constrained by supply chain disruptions, labor shortages, and uncertainty around the Delta variant of COVID-19."

It's consistent with a government report released last week showing that America's economic growth has dropped sharply from 6.7% in the second quarter to 2.1% in the third quarter.

The trouble is that America’s inflation and growth problems are accommodated by the Fed’s easy money policies, according to Jake Wujastyk, chief market analyst at TrendSpider.

"The Fed's Beige Book outlined many things that have been known for quite some time," says Wujastyk. "The supply chain issues domestically and globally are hindering growth as bottlenecks continue. Due to these supply chain constraints, prices are being affected, but are being exacerbated by the monetary policies enacted by the Fed."

It's about time that the Fed reverses these policies.


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