The US economy showed an overall increase in activity since late May, though most regions expect the pace of expansion to weaken, the Federal Reserve said in its Beige Book survey of regional business contacts.
“Overall economic activity increased slightly since late May,” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “Economic expectations for the coming months generally continued to call for slow growth.”
Employment increased modestly this period, with most districts experiencing some job growth, and employers continued to have difficulty finding workers, the survey showed.
On inflation, prices increased at a modest pace, but the rate of growth slowed in several districts, it said. Price expectations were generally stable or lower over the next several months, according to the survey.
Data out earlier in the day showed the consumer price index rose 3% in June from a year earlier, less than economists had estimated. The report offered welcome news for policymakers who have been bearing down on price pressures. Continued relief in the core services categories — which excludes volatile food and energy prices and is watched closely by Fed officials — could give them flexibility to pause or potentially halt rate hikes after this month, economists say.
Contacts in some districts noted reluctance to raise prices, according to the survey.
That’s because consumers “had grown more sensitive to prices,” it said. Others reported that solid demand allowed firms to maintain margins. Input-cost pressures “remained elevated for services firms but eased notably in the manufacturing sector.”
The majority of Fed officials see interest rates moving higher this year to deal with a slower-than-expected cooling of price pressures and a persistently strong labour market. The Fed held policy rates steady last month, signaling a slower pace for rate moves to evaluate how the economy was responding to 10 straight increases and March’s banking turmoil.
Fed Chair Jerome Powell said last month he wasn’t ruling out two consecutive hikes this year from the current range of 5% to 5.25%. The most recent reading of the Fed’s preferred gauge of inflation — the personal consumption expenditures price index — rose 3.8% in May from a year earlier, almost double the central bank’s 2% target.
The Beige Book, based on anecdotal information from the Fed’s 12 regional banks, was put together by the Minneapolis Fed based on information gathered through June 30.
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