Investing.com - The U.S. economy continued to expand at a moderate pace amid "tight" labor markets, but uncertainty over international trade prompted businesses to scale back plans on spending, according to the Fed's Beige Book released Wednesday.
The S&P 500 sold off slightly after the report was released, but cut losses soon after.
The central bank’s Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through Aug. 31, showed the U.S. economy and inflation continued on a upward trajectory, but manufacturers' plans to ramp up spending was upended by ongoing trade tensions.
"Businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions -- particularly though not only among manufacturers. A number of Districts noted that such concerns had prompted some businesses to scale back or postpone capital investment," according to the book.
The Fed's concerns over trade tensions come as both the U.S. and China have vowed to impose tariffs on each other, though a report Wednesday said the U.S. and China would restart trade negotiations, which eased investor worries somewhat.
U.S. Treasury Secretary Steven Mnuchin sent a letter to Chinese officials to propose trade talks in the next few weeks, The Wall Street Journal reported.
In a sign that inflation may be heating up, the Fed said "businesses' input costs have generally been rising more rapidly than selling prices," which leaves the door open for further consumer inflation growth, as businesses have made "increased efforts" to pass along cost hikes to customers.
"Prices of final goods and services continued to rise at a modest to moderate pace in most Districts, though there were some signs of a deceleration," the Fed said in the report.
The Fed's Beige Book drew a muted reaction in investor expectations for further rate hikes, as the odds of a December rate hike were unchanged at 81%, according to the Investing.com's Fed Rate Monitor tool.
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