By Yasin Ebrahim
Investing.com – The trend of elevated inflation and a tight labor market was expected to persist, but the overall economic picture over the next six months remains generally optimistic, according to the Federal Reserve's Beige Book released Wednesday.
Economic activity has expanded at a modest to moderate pace since mid-January, but there was little sign that either wage or price pressures were abating amid a tight labor market and rising input costs, the Fed said in its Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through Feb. 18.
“Contacts reported they expect the tight labor market and consequent strong wage growth to continue, though a few Districts reported signs of wage growth moderating,” the Beige Book showed.
The outlook on the labor market comes just as data showed that private payrolls in February grew by a more than expected 475,000.
The rise in prices, meanwhile, continued to be passed onto the consumer, and had increased at a robust pace to offset rising input costs that were pushed higher by “elevated transport costs.”
“Firms reported they expect additional price increases over the next several months as they continue to pass on input cost increases,” according to the report.
Fed Chair Jerome Powell and his colleagues, however, have reiterated expectations for inflation pressures to ease in the second half of this year.
“Those of us on the committee have an expectation that inflation will peak and begin to come down this year. And to the extent that inflation comes in higher or is more persistently high than that, then we would be prepared move more aggressively,” Powell said.
The fed chief also confirmed market expectations that the U.S. central bank will raise interest rates by 25 basis points at its meeting next month, but didn’t rule out a larger hike at subsequent meetings if inflation remained elevated.
"I’m inclined to propose and support a 25 basis point rate hike," Powell said in testimony before Congress on Wednesday.
But if inflation continues to run hot, the Fed is "prepared to move more aggressively by raising the federal funds rate by more than 25 basis points" at one or more meetings later this year, Powell added.