Fed sees pickup in growth, but inflation remains muted
Policy-makers already raised rates twice
WA S HI NGT ON • The U. S. economy expanded at a modest to moderate pace in July through mid- August but signs of an acceleration in inflation remained slight, the latest survey conducted by t he Federal Reserve showed on Wednesday.
“Prices rose modestly overall across the country,” the central bank said in its Beige Book report of the economy, compiled from anecdotal evidence derived from business contacts nationwide.
Policy-makers have raised interest rates twice this year but the prospect of a third in 2017 appears increasingly uncertain against a backdrop of weak price pressures despite the U. S. economy humming along with l ow unemployment and continued growth.
The Fed’s preferred measure of inflation retreated to 1.4 per cent in July on a year-on-year basis, the slowest pace in more than 1- 1/2 years.
Many of the Fed’s 12 districts reported that businesses were having difficulty filling job openings at all skill levels, but this was not resulting in a widespread boost to salaries.
“The majority of districts reported limited wage pressures and modest to moderate wage growth,” the report said, repeating sentiments expressed in previous Beige Book reports over the past several months.
Businesses in the Atlanta Fed district, for example, faced labour shortages but dealt with them by trying to “increase operational eff i ciencies by evaluating whether to fold one job into another, replace positions with technology ... or shift the salary towards training and development of other employees.”
Elsewhere, the Fed said that consumer spending in- creased in most districts and that many contacts were becoming worried about a prolonged slowdown in the auto industry.
The slide in i nflation prompted influential Fed Governor Lael Brainard to call on Tuesday for the central bank to delay raising interest rates until it is confident the weak readings will rebound.
The Fed is seen holding its benchmark rate steady at its next meeting in two weeks time, but economists largely expect policy-makers will take another step in removing accommodation by announcing an imminent reduction of the Fed’s US$ 4.2 trillion bond portfolio.