US economic activity‘ slightly increased’

WASHINGTON, D.C.: US economic activity has “increased slightly” since the start of the year, though price pressures have persisted, the US Federal Reserve (Fed) said Wednesday in its regular summary of economic conditions.

The new report is the latest indication that the US economy remains surprisingly resilient despite the Fed’s decision to hike interest rates to tackle high inflation.

Since early January, US economic activity has “increased slightly, on balance,” the Fed announced in its regular update of economic conditions known as the “beige book.”

In total, eight of the 12 Fed districts reported “slight to modest growth in activity,” while three reported no change and one saw a slight softening in activity, it added.

Despite strong top line indications of growth, the Fed noted that consumer spending has inched lower, with some households cutting spending on discretionary goods and swapping more expensive items for cheaper equivalents.

The Fed’s beige book found that employment rose at a “slight to modest pace” in most regions, while the overall tightness in the labor market “eased further.”

This made it easier for employers to hire new workers and to hold onto existing employees.

Although overall price pressures “persisted,” the Fed found that several districts reported “some degree of moderation in inflation.”

This chimes with recent US inflation data, which show the headline rate of annual price increases continues to slow, although it remains stuck above the Fed’s long-term target of 2 percent.

Meanwhile, Fed chief Jerome Powell said on Wednesday the Fed’s progress in bringing down inflation is “not assured.”

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell told the House Financial Services Committee.

“But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured,” he added.

The Fed has raised its key lending rate to a 23-year high to tackle stubborn inflation, successfully bringing the rate of price increases down from multi-decade highs toward its longrun target of 2 percent.

But inflation remains elevated, while the labor market and economic growth have proven to be surprisingly resilient to higher interest rates, which suggests that the Fed’s road to 2 percent could be a bumpy one.

Powell said the Fed’s rate-setting committee “does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Futures traders have assigned a probability of just over 70 percent that the Fed will have begun cutting interest rates by mid-June, according to data from CME Group.

Powell was also questioned on Wednesday on Capitol Hill about proposed changes to banking regulation, which some members of the Fed’s own board of governors have criticized as unnecessarily tough.

He told lawmakers the Fed is “carefully analyzing” the “voluminous” responses to its proposals, which include plans to require banks with more than $100 billion in assets to increase the amount of capital they hold.

“I do expect that there will be broad and material changes to the proposal,” he said.