Fed Says U.S. Growing Modestly With Subdued Inflation Signs

  • Beige Book compiled district information through February 17
  • Some areas reported ‘widening labor shortages,’ report said

Fed Beige Book Shows U.S. Economy Growing Modestly

The economy grew at a modest to moderate pace across the U.S., further tightening the labor market but without significant acceleration in wages or inflation, a Federal Reserve survey showed.

The central bank’s Beige Book economic report, based on information collected by regional Fed banks from early January through Feb. 17, said employment grew moderately while some districts reported “widening labor shortages,” another sign the economy was at or near what economists consider full employment.

Wages generally continued to respond only “modestly or moderately” to the tightening jobs market, with a few districts reporting “some pickup in the pace of wage growth.” Overall pricing pressures were little changed from the prior report, the Fed said Wednesday.

“Businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report,” the Fed said.

The survey results from the district banks come amid growing expectations that Fed officials will raise their benchmark lending rate by a quarter percentage point when they gather in Washington March 14-15. Yields on two-year U.S. Treasury notes climbed above 1.3 percent earlier on Wednesday for the first time in more than seven years.

Several policy makers have said in recent days the central bank is close to achieving its dual goals of bringing unemployment to its lowest sustainable level and inflation to 2 percent. New York Fed President William Dudley said Tuesday the case for tightening had become “a lot more compelling,” while his San Francisco counterpart John Williams said he expects a hike will receive “serious consideration” this month.

Rising Inflation

The Commerce Department reported earlier on Wednesday that the Fed’s preferred measure of inflation in the 12 months through January rose to 1.9 percent. Excluding food and energy, prices in that period climbed 1.7 percent. Joblessness was 4.8 percent in January.

The Fed’s Beige Book report included several references to the negative impact of a stronger dollar on exports and tourism.

Some districts also reported rising concern that various policies proposed by the Trump administration may adversely affect certain industries.

“A few manufacturing contacts said their customers held a ‘wait-and-see’ approach and that there is considerable uncertainty, including over the potential impacts related to policy changes from the Trump administration,” according to the Dallas Fed portion of the report.

The Boston Fed said hotel and restaurant groups as well as high-tech manufacturers were worried that travel and visa restrictions would hurt business and the ability to find skilled workers. In discussing another Trump administration proposal, the Dallas Fed’s contacts were “unanimously negative in their expectations about the impact of the proposed border adjustment tax on their firms.”

By contrast, service contacts in the Cleveland district reported companies have renewed confidence in moving forward with engineering, architecture and legal projects after the election, with some citing optimism about the economy.

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