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.

The report will do little to change the immediate course of Fed policy, with central bankers set to start cutting their $ 120 billion in monthly bond purchases as early as next month after what most see it as a substantial improvement in the labor market since the end of last year. .

But that could help cloud discussions of what the Fed should do next, especially since inflation has been well above the Fed’s 2% target in recent months.

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.

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; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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