The latest Federal Reserve survey, known as the ‘Beige Book‘, reveals a slight expansion in economic activity in the U.S. from late February through early April. Despite this modest growth, firms expressed expectations for inflation pressures to remain steady, aligning with recent trends that have deterred the central bank from considering interest rate cuts.
Cautiously optimistic outlook
According to the Beige Book, overall U.S. economic activity expanded slightly during the surveyed period, with 10 out of 12 districts reporting either slight or modest growth. The economic outlook among business contacts was cautiously optimistic, reflecting a delicate balance of optimism tempered by ongoing economic uncertainties.
The release of the Beige Book comes on the heels of Federal Reserve Chair Jerome Powell’s departure from previous guidance on interest rate cuts. Hence, Powell emphasized the need for monetary policy to remain restrictive for longer due to stronger-than-expected inflation readings.
The Fed’s survey highlighted the persistence of inflation concerns in the U.S., despite economic activity growth with firms describing the pace of price increases as modest on average. While some districts reported moderate increases in energy prices and identified upside risks in input and output prices, overall expectations were for inflation to hold steady at a slow pace moving forward.
Inflation in the U.S. has been declining after hitting a 40-year high two years ago amid strong economic activity and a low unemployment rate. However, this momentum has stalled and even reversed, sparking concerns over the Fed’s expectations of three interest rate cuts this year. Investors now expect the first interest rate cut to occur in September and the possibility of a second rate cut is declining.
Read: IMF raises global growth forecast to 3.2 percent, lifts outlook for UAE, Saudi Arabia
Policy rate stability
The Fed is expected to maintain its policy rate within the current range of 5.25-5.50 percent at the upcoming April 30-May 1 policy meeting. Iinflation in February had risen to 2.5 percent. Despite the slight economic expansion, employment rose at a slight pace overall, with persistent shortages of qualified applicants reported in many districts. However, multiple districts noted that annual wage growth rates had returned to historical averages, indicating stability in labor market dynamics.
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