The US grew steadily through early April, a Federal Reserve survey found, but high inflation showed little sign of relenting in “the coming months” and clouded the outlook for the economy.
The regular Fed survey, known as the Beige Book, found little evidence inflation is set to turn sharply lower. Businesses have been forced to pay higher wages due to a tight labor market, supply-chain bottlenecks persistence and prices continued to rise.
The war in Ukraine added to inflationary pressures by raising the cost of oil, metals and grains such as wheat, the Fed noted. Fresh coronavirus outbreaks in China also “worsened supply chain disruptions.”
“Firms in most Districts expected inflationary pressures to continue over the coming months,” the Beige Book said.
The cost of living in the 12 months ended in February rose to a 40-year high of 8.5%, forcing the Fed to start to raise interest rates for the first time since 2018.
The central bank raised a key short-term US interest rate in March from near zero, with plans to ramp it up to as high as 2.5% by year end. The Fed hopes higher rates will help tame inflation, but not so much as to sharply slow the economy.
Here are the highlights from the report:
The US economy expanded at a “moderate” pace from March through April 11, the Fed found.
Consumer spending picked up and more workers went back to the office. Farmers also benefited from surging crop prices, though the result is that households will end up paying more for groceries or eating out.
Businesses were a bit less confident about what lies ahead, though.
“Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices,” the Beige Book said.
“Inflationary pressures remained strong since the last report, with firms continuing to pass swiftly rising input costs through to customers,” the Beige Book said.
Put another way, inflation is still far too high and unlikely to ease much in the next few months.
A few companies said rising prices were starting to hurt sales, but not enough to make a big difference.
Demand for labor is strong, the Fed said, but a shortage of workers is still the biggest obstacle to hiring. Even higher wages have not been enough to draw more people back into the labor market.
Job-hopping is also a big problem.
“Many firms reported significant turnover as workers left for higher wages
and more flexible job schedules,” the Fed said. “Persistent labor demand continued to fuel strong wage growth, particularly for footloose workers willing to change jobs.”
There was hardly any talk of the threat of US recession — only one business person surveyed mentioned the possibility.
A few raised companies the prospect of recession in Europe stemming from the war in Ukraine.
Fed officials have insisted they can slow inflation without slowing the economy, but it’s seldom achieved that goal when inflation has been as high as it is now.