In World Economy News 01/06/2017
The U.S. economy expanded at a modest to moderate pace from early April through late May but showed little sign of breaking out of a recent trend of sluggish inflation, a survey conducted by the Federal Reserve showed.
“On balance, pricing pressures were little changed from the prior report,” the central bank said in its Beige Book report of the economy derived from anecdotal evidence provided by business contacts nationwide.
The Fed has begun to quicken the pace of interest rate hikes on an improving economy after years of rates held near zero in the aftermath of the financial crisis. The U.S. unemployment rate – currently at 4.4 percent – is at a near 10-year low.
Policymakers raised rates in December 2015 and again a year later, and have forecast three rate hikes in 2017. They raised rates in March and could do so again as early as their next policy meeting in two weeks time.
Influential Fed Governor Lael Brainard said on Tuesday a rate rise “likely will be appropriate soon,” although she and some other Fed officials remain concerned about stilted progress on inflation meeting the Fed’s 2 percent target rate in recent months.
The majority of the Fed’s 12 districts reported that firms expressed positive near-term outlooks despite a recent softening in consumer spending.
Labour markets also continued to tighten with both employment and wages growing at a modest to moderate pace. As has been reported in the Beige Book for months, firms with the most acute labour shortages raised wages the most.
That trend still did not for the most part feed into inflation, however. Rapidly rising costs for some commodities such as lumber and steel “tended to push input costs higher for some manufacturers and the construction sector,” the Fed said, but “in contrast, some districts noted falling prices for certain final goods, including groceries, apparel and autos.”
Energy prices and farm prices were also mixed.
In the Boston Fed district, for example, “Price pressures continued to be modest. The outlook remained positive, with a bit of added caution.”
The U.S. economy grew sluggishly in the first quarter but recent data point to an acceleration in the second quarter.
Consumer spending recorded its biggest increase in four months in April, data showed on Tuesday.
The Beige Book was compiled by the Philadelphia Fed with information collected on or before May 22.
Source: Reuters (Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)
