U.S. businesses see growing signs of slowing as inflation persists, Fed survey finds

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By Lindsay Dunsmuir

(Reuters) – The U.S. economy grew at a modest pace from mid-May to mid-July, a U.S. Federal Reserve report showed on Wednesday, as the central bank’s new aggressive moves to curb inflation amounted to more than 40 years. high continued to have an impact.

The Fed released its latest temperature statement on the state of the economy as it continues a series of interest rate hikes that aim to cool demand but also stoke fears of a recession. On that front, there were few signs that inflation was likely to come down anytime soon as policymakers continue to struggle to get it under control.

The US Department of Labor reported earlier on Wednesday that consumer prices jumped 9.1% in June on an annual basis, due to rising costs for gasoline, food, rent and housing. other articles, which has investors now betting that the Fed will raise rates by a full percentage point. at its next meeting on 26 and 27 July.

“Several districts reported increasing signs of slowing demand, and contacts in five districts raised concerns about heightened recession risk,” the Fed said in its survey, known as the “Beige Book”, which was conducted in its 12 districts. until July 13.

Fed policymakers are keeping a close ear to comments from business contacts across the country as they analyze the economic outlook.

The report also noted that substantial price increases were reported across all districts, with “most contacts expecting price pressures to persist at least through the end of the year.”

The latest survey paints a picture of a discordant economy. Businesses mostly say their pricing power is stable, though most districts said consumer spending moderated as higher food and gasoline prices weighed on revenue Household.

In the New York Fed District, for example, contacts said companies continued to note a widespread escalation in their selling prices, with the majority saying they expect further price increases in the coming months.

The labor market also remains tight, with a third of districts saying employers are considering or have already given workers bonuses to offset high inflation.

At the same time, “nearly all districts noted modest improvements in labor availability amid weaker demand for workers, particularly among industrial and construction contacts,” indicates the report.

The Fed raised its key overnight lending rate by three-quarters of a percentage point last month to a target range of 1.50% to 1.75%, its biggest rate hike since 1994. It attempts to lower the rate of price increases close to its 2% target by restricting economic activity without causing a sharp rise in unemployment.

Policy makers have been supported in this by a very tight labor market, with vacancies still outnumbering workers by twice as many, which they say better balances demand and supply without losing jobs. jobs.

In the Kansas City District, multiple contacts said the number and quality of applicants for open positions has recently increased. “Some contacts have suggested that the resumption of applications may be related, in part, to financial strains resulting from price pressures,” the report said.

GROWTH IS SLOWING, BUT INFLATION IS LITTLE

The growing trend towards slower activity was evident in a number of regions, but was most notable in the New York Fed District. “Economic growth has slowed,” the report said, noting weakening demand from businesses and households in the face of labor shortages, supply backlogs and a regional rise in COVID-19 cases. .

But that has not been offset by a similar lessening of pricing pressures with companies in certain industries, such as travel and hospitality, managing to pass on significant price increases to customers “with little or no retreat”.

Indeed, districts continued to report signs of high – and widespread – inflation. The Boston Fed reported that hotel room rates there jumped 87% between February and May and the price of frozen fish year-over-year rose 25%, while in the district from the Cleveland Fed, “most companies raised prices as they tried to keep up with rising costs.”

(Reporting by Lindsay Dunsmuir and Dan Burns; Editing by Paul Simao and Chizu Nomiyama)

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