Fed report shows wage pressures amid “modest to moderate” economic growth

The Federal Reserve Building stands against a blue sky in Washington, USA, May 1, 2020. REUTERS / Kevin Lamarque / File Photo

October 20 (Reuters) – U.S. employers reported significant price and wage increases even as economic growth slowed to a “moderate to moderate” pace in September and early October, the Federal Reserve said in its latest on Wednesday. collection of reports on the economy.

“The outlook for short-term economic activity has remained broadly positive, but some districts have noted increased uncertainty and more cautious optimism than in previous months,” according to the Fed’s 12 regional district information summary, prepared in the part of a wide range of briefings ahead of the policy makers meeting on 2-3 November.

Employment has grown, although workforce growth has been held back by a low supply of workers, despite wage increases designed to attract new hires and keep existing employees, according to the report.

Most districts reported “significantly high prices”, with some expecting prices to remain high or increase further, and others expect inflation to moderate. “Many companies have increased their selling prices, indicating a greater ability to pass cost increases on to customers amid high demand,” Fed Districts reported.

Policymakers are set to start cutting their $ 120 billion in monthly asset purchases as early as next month after what most see as a substantial improvement in the labor market since late last year. The report isn’t likely to change that move, but it exposes the tensions Fed policymakers face as they cross the threshold and begin to consider when to raise rates. Inflation has been well above the Fed’s 2% target in recent months.

Fed Governor Randal Quarles said on Wednesday that the current high inflation could test the Fed’s patience as it leaves rates low to encourage hiring. His current view, like that of most of his colleagues, is that inflation will come down next year. But if wages start to push prices on an upward spiral, or if inflation expectations start to wane, he said, the Fed may need to act sooner to raise rates.

Policymakers are keenly focused on what drives these price increases and whether they will decrease, as most expect, next year.

If the current high inflation persists, the Fed may have to start raising rates sooner than expected, several policymakers said recently.

However, Cleveland Fed Chairman Loretta Mester brushed aside those concerns on Wednesday afternoon, saying that while she sees upside risks to inflation, she expects inflation to come back down again. ‘next year.

“I don’t think interest rate hikes are coming anytime soon,” Mester said in an interview with CNBC.

COMPANIES INCREASE PRICES

Wednesday’s report showed that businesses in most districts were feeling price and wage pressures due to supply chain bottlenecks as well as labor constraints.

The Philadelphia Fed reported on one company offering up to “$ 90,000 for a second-year CPA position that could have cost $ 65,000 before the pandemic.”

The Cleveland Fed said nearly 60% of its contacts have reported wage increases recently, but with supply chains slowing the production of goods, even that didn’t seem to be enough. A car dealership, the district reported, noted that “supply chain disruptions were at the root of its workforce problems, adding that” nothing to sell makes it difficult to retain employees. ” “.

A furniture retailer told the Boston Fed it had increased prices by more than 30% since February 2021 to reflect rising costs of shipping and materials.

The San Francisco Fed reported that competition for talent and workers’ willingness to change jobs were pushing up wages, with one banking contact calling it “a wage war.”

Meanwhile, the increase in the number of available workers that many employers expected to see as pandemic unemployment benefits expire and schools resume session has not materialized in many districts. , according to the report.

Reporting by Ann Saphir and Lindsay Dunsmuir; Additional reporting by Jonnelle Marte ‘Editing by Andrea Ricci and Diane Craft

Our Standards: The Thomson Reuters Trust Principles.


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