Fed says higher fuel costs are weighing on some US consumer spending

The US Federal Reserve said Wednesday that consumer spending edged up, but higher prices, especially for fuel, dampened sales in other categories and led some consumers to cut back on non-essential purchases or choose cheaper alternatives.

In its Beige Book survey of economic conditions, the Fed said businesses and organizations generally expected the economy to keep expanding in the coming months. It also said several of its 12 districts reported elevated uncertainty about the outlook for fuel costs.

The report comes before the next policy meeting of the Fed's rate-setting committee, scheduled for July 28 and 29.

Energy costs have surged since US-Israel strikes targeting Iran from February prompted Tehran's retaliation in virtually closing off the Strait of Hormuz. Prices at US gasoline pumps climbed as the Middle East plunged into war, squeezing household budgets and increasing pressure on the Trump administration ahead of key midterm elections this year.

The Fed said some districts saw a tourism boost from World Cup visitors during the period from late May to June. It said prices increased moderately overall, with higher energy, transportation and raw materials costs moving through the economy.

Some contacts tied these cost increases to the conflict in the Middle East, while others mentioned tariffs, the Fed said. Some firms also reported that their business costs rose more than they could raise selling prices, squeezing their margins.

Fed officials have been watching price pressures closely because inflation has remained above the central bank's longer-term two-percent target for around five years. Traders expect a rate hike this year, in September or later, according to CME Group's FedWatch tool, as the Fed seeks to curb inflation.