Apr 19 (Reuters) – US economic activity has been little changed in recent weeks, according to a Federal Reserve report released on Wednesday, as job growth has moderated somewhat and inflationary increases appeared to be slowing.
“Expectations for future growth also remained largely unchanged; however, the outlook worsened in two districts,” the Federal Reserve said in its latest Beige Book compendium of surveys and interviews conducted through April 10 in its 12 districts. “Further Contacts expects relief from cost pressures on inputs, but expects to change their prices more frequently compared to previous years.”
The Fed’s latest report on economic conditions offers a snapshot of business, banking and labor conditions following the collapse of two major regional banks in mid-March, which shook confidence in the US financial sector and prompted an emergency response from regulators that included the fallout.
Less than two weeks into this crisis, Fed policymakers raised the benchmark federal funds rate by just a quarter of a percentage point to the 4.75% to 5.00% range, despite still feeling that inflation was unacceptably high.
They also signaled that they are nearing the end of the most aggressive wave of monetary tightening in 40 years, with most policymakers calling for a final quarter-point increase ahead of an expected longer hold period.
Overall, Wednesday’s report provided little to change that course: Lending fell and heightened pricing pressures eased, but neither trend was dramatic or suggested an economy on the brink of an economic downturn or a sharp rise in unemployment in any one country historical low to a level of 3.5%.
CREDIT WILL BE TIGHTENED
The report pointed to declining credit volumes and credit demand for households and businesses, and suggested that last month’s bank failures are likely to reduce credit supply in the coming months.
In the San Francisco Fed district, home of the failed Silicon Valley bank, “credit has slowed significantly in recent weeks amid higher interest rates and heightened uncertainty in the banking sector,” the report said.
Businesses in the region “had a weaker overall economic outlook,” and credit constraints along with reduced philanthropy made it harder for communities to provide food, shelter and services, the San Francisco Fed said.
But other districts were less shaken.
“Bank contacts reported some movement in deposits but little change in credit availability after the Silicon Valley bank collapse,” the Chicago Fed said.
The Cleveland Fed said concerns about developments in the banking sector “reportedly had a limited impact on recent business activity, although a small proportion of contacts reported a slight decline in credit availability.”
‘PEELING’ WORK
The report also suggested a mixed bag on the outlook for inflation and the labor market. Several districts reported that freight volumes had slowed, evidence of slowing demand for goods and lower demand for labor, particularly in the transportation sector, which has been a top job generator since the pandemic.
“Haulers said they were still adding drivers in response to lower freight volumes, but they had scaled back recruitment and were very selective about hiring,” the Richmond Fed said.
The Minneapolis Fed, which includes states where the job market is among the tightest in the country, said that while mass layoffs were still few, a “Minnesota staffing firm said companies are exfoliating the workers they don’t need “.
Fed policymakers have long said they need to see softer labor markets to achieve lower inflation.
At the same time, most regions across the country reported “steady to rising demand” for non-financial services, a potential warning sign that services inflation could continue to prove stubborn.
“Buyers have reportedly made more concessions than they have in the last two years of a pacing pricing environment,” the Atlanta Fed reported. But other costs, including food and labor, “dissuaded companies from passing on easing cost pressures to customers,” it said
The Fed is targeting 2% inflation as measured by the personal consumption spending index, which rose 5% in February from a year earlier. Policymakers are getting a new monthly reading just days before their May 2-3 interest rate setting meeting.
Reporting by Ann Saphir; Edited by Paul Simao
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