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Fed Says Price Pressures Rising With Economic Growth Steady

The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.

By Christopher Condon

(Bloomberg)—The U.S. economy grew at a modest to moderate pace through mid-November as price pressures strengthened and the labor market tightened, a Federal Reserve survey showed.

The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Nov. 17, said business contacts also reported a brightening view as they look ahead. The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.

“There was a slight improvement in the outlook among contacts in reporting districts,” according to the report, published Wednesday in Washington.

The Beige Book’s release followed a Commerce Department report Wednesday showing the economy expanded by 3.3 percent annualized pace in the third quarter, faster than an initially reported 3 percent.

That also dovetailed with congressional testimony delivered Wednesday by Fed Chair Janet Yellen, who described the ongoing expansion as “broad based across sectors as well as across much of the global economy.”

The lack of more significant wage pressures despite a hot job market continued to be a theme in the Beige Book.

Qualified Workers

“Most districts reported employers were having difficulties finding qualified workers across skill levels,” the report said. Despite that, “wage growth was modest or moderate in most districts,” according to the report, which used similar language in October.

The report did note, however, that “price pressures have strengthened since the last report.” Some districts reported higher costs for construction materials, while businesses in Richmond said they were able to hike prices for services ranging from information technology to elevator repair.

If price pressures persist, that could help resolve the mystery faced by Fed officials as they confront a tightening labor market and sluggish wages and prices. That contradiction has complicated the task of deciding how quickly they should raise interest rates.

Even with the relatively positive tone of the Beige Book, there were scattered concerns about potential changes to taxes and other policies.

In the Boston region, residential real-estate contacts said they were concerned that the tax proposal being debated in Congress would increase home-buying costs and “disrupt the housing market.” In the Dallas district, “some contacts noted that uncertainty surrounding federal tax reform, health care, and government regulation was making it difficult to plan for 2018.”

Most investors expect the Fed will increase its benchmark rate by a quarter percentage point in December for the third time this year.

Unemployment fell to 4.1 percent in October. Despite that, the Fed’s preferred measure of inflation, excluding food and energy components, was just 1.3 percent in the 12 months through September. Inflation has lagged below the Fed’s 2 percent target for most of the past five years.

© 2017 Bloomberg L.P

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