Fed report shows wage pressures amid ‘modest to moderate’ economic growth

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Report: Despite wage increases designed to attract new employees, employment grew, although labor growth was slowed by low labor supply

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US employers reported significant increases in prices and wages, even as economic growth fell to a “moderate to moderate” pace in September and early October, the Federal Reserve said on Wednesday in its report about the economy. Said in the latest collection.

“The outlook for near-term economic activity remained positive, overall, but some districts saw an increase in uncertainty and more cautious optimism than in previous months,” according to a summary of information from the Fed’s 12 regional districts, across a wide range of areas. Made as part. Briefing ahead of the 2-3 November meeting of policy makers.

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Employment has increased, although a short supply of workers has slowed labor growth, despite wage increases to attract new workers and keep existing employees, the report said.

Most districts reported “significantly higher prices”, with some expecting prices to remain high or move up, and others expected inflation to moderate. “Many firms have raised selling prices, indicating greater ability to pass along cost increases to customers amid strong demand,” the Fed Districts report said.

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Policymakers are set to begin reducing their $120 billion in monthly asset purchases as soon as next month after what is seen as a substantial recovery in the labor market since late last year. The report is unlikely to change that decision, but it does highlight the tensions that Fed policymakers face as they move past the taper and begin to consider when to raise rates. Inflation has been running well above the Fed’s 2% target for the past several months.

Fed Governor Randall Quarles said on Wednesday that current high inflation could test the Fed’s patience as it lowers rates to encourage hiring. His current outlook, like that of most of his colleagues, is that inflation will subside next year. But if wages begin to drive prices upward, or inflation expectations begin to become uncontrollable, he said, the Fed may need to act sooner to raise rates.

Supply chain disruptions, labor shortage slow economic growth, says Fed’s beige book

Policymakers are focusing on the drivers of those price increases and whether they will, as is most expected, decrease next year.

If current high inflation persists, the Fed may need to raise rates sooner than widely predicted, several policymakers have said recently.

However, Cleveland Fed Chair Loretta Meester hit back against those concerns on Wednesday afternoon, saying that although she sees upside risks to inflation, she expects inflation to return next year.

“I don’t think a hike in interest rates is coming anytime soon,” Meester said during an interview with CNBC.

Firms raise prices

Wednesday’s report showed companies in most districts were feeling price and wage pressures from supply chain constraints as well as labor constraints.

Rise in used car prices signals a pick-up in inflation

The Philadelphia Fed reported on a firm that was offering “as much as $90,000 for a second-year CPA position that commanded $65,000 before the pandemic.”

The Cleveland Fed said about 60% of its contacts recently reported wage increases, but that production of goods along supply chains slowed, even if it wasn’t enough. An auto dealer in the district reported that “disruptions in the supply chain were causing their labor challenges, ‘Saying nothing makes it difficult to keep employees.’”

A furniture retailer told the Boston Fed that it has increased prices by more than 30% since February 2021 to reflect increased shipping and material costs.

The San Francisco Fed reported competition for talent and a willingness to change jobs as wages increased for workers, with a banking sector contact calling it “a wage war”.

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Meanwhile, the increase in available workers, which many employers expected to see as pandemic unemployment benefits ended and schools are back in session, failed to materialize in many districts, the report showed.


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