The Federal Reserve's Beige Book report for the month of July supported the hawkish commentary by Philadelphia Fed President Charles Plosser on Tuesday, as all of the twelve Districts said that prices were "elevated" or "increasing". However, this does not appear to be sparking a wage-price spiral, as the central bank fears, since the report notes that wage pressures were "generally limited" given soft labor market demand. Indeed, this also appeared to be translating into "sluggish" or "slowing" consumer spending in the services and manufacturing sectors, which saw only a small boost from the tax rebate and was likely constrained by rocketing gasoline costs. Unsurprisingly, residential real estate markets remain the primary soft-spot of the US economy, though commercial real estate activity has slowed as well. Add to the mix restrained loan growth in residential real estate lending and consumer lending, and it is clear why Treasury Secretary Henry Paulson remains so concerned about the health of Fannie Mae and Freddie Mac.

The US dollar has strengthened slightly on the release, as the markets weigh the odds of whether or not the FOMC's two hawks - Charles Plosser and Richard Fisher - can garner a majority vote in favor of raising rates this year in order to fight inflation. However, given persistently tight credit conditions and a marked slowing in the US economy, such a rate increase is unlikely. -- Terri Belkas, Currency Analyst for DailyFX.com