Investing.com – The outlook on U.S. economic growth remained “upbeat,” despite concerns about the ongoing international trade spat between the U.S. and its trading partners as manufacturing activity shifted into "higher gear," a Federal Reserve survey showed.
The central bank’s Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through May 21, showed the U.S. economy and inflation expanded at a modest pace.
“Contacts noted some concern about the uncertainty of international trade policy. Still, outlooks for near term growth were generally upbeat,” according to the Fed’s beige book. “Economic activity expanded moderately in late April and early May with few shifts in the pattern of growth.”
Wage increases remained “modest” in most Districts, and some districts expected similar employment and wage gains in the coming months, according to the Fed’s beige book.
The modest pace of wage growth comes as many firms increased wages as well as the generosity of their compensation packages.
Manufacturing activity “shifted into higher gear,” the Fed said, with more than half of the Districts reporting a pickup in industrial activity and a third of the Districts classifying activity as "strong.”
The Fed hinted at a faster pace of consumer inflation, citing "some Districts also noted that their retail contacts were more able to pass along price increases to their customers than in the recent past.”
Analysts at BMO said the "harder data" was yet to validate the Fed's "fairly positive," view of price pressures building and modest wage gains.
"While the release offers a fairly positive view of price pressures building and of labor shortages flowing through to 'modest' wage gains, we've yet to see that dynamic play out in harder data," BMO said.
The release of the Beige book did little to shift the narrative on monetary policy, drawing a muted reaction in markets, as traders continued to expect the Federal Reserve will hike rates at its next meeting in June.
According to Investing.com's Fed Rate Monitor Tool, about 85% of traders expect the Fed to hike rates in June.