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Federal Reserve April survey: Economic and inflation trends

Federal Reserve April survey, financial news

Economic activity in the United States has seen a modest increase in recent months, according to a Federal Reserve survey, which covered the period from late February to early April. This survey reveals that businesses are not expecting significant changes in inflationary pressures anytime soon. The ongoing economic conditions, which have not significantly alleviated inflation pressures, have influenced the Federal Reserve's strategy, leading it to maintain existing interest rates instead of lowering them.

Federal Reserve Chair Jerome Powell recently adjusted his approach towards the bank’s future monetary policies. Departing from earlier predictions about when the Federal Reserve might reduce its benchmark interest rate, Powell highlighted the need for maintaining a restrictive policy stance over an extended period. This adjustment in policy guidance comes in response to a series of inflation readings that have consistently exceeded the Fed's expectations, suggesting a more persistent inflationary trend than previously anticipated.

The Federal Reserve's periodic report, known as the "Beige Book," compiles observations from business contacts across its 12 districts, with the latest findings up to April 8 indicating growth in economic activity in ten of those districts. This growth ranged from slight to modest. The general sentiment among these contacts remains cautiously optimistic about the economic future, reflecting a blend of hope and realism about the pace and stability of economic expansion.

Throughout the past year, optimism within the Federal Reserve was bolstered by favorable economic indicators, including a gradual reduction in inflation from highs not seen in four decades, coupled with strong economic growth and a resilient job market. However, the recent slowdown in momentum toward achieving the Fed's inflation target of 2% has raised doubts about the central bank's ability to implement planned rate cuts. As a result, the financial markets have adjusted their expectations, now forecasting a less aggressive rate cut schedule, with the first cut potentially delayed until September and further cuts becoming increasingly uncertain.

The survey also detailed the state of inflation, with most firms experiencing modest increases in prices on average. However, notable was the observation in six Federal Reserve districts of moderate increases in energy costs. Some sectors, particularly manufacturing, reported potential near-term risks of rising prices for both inputs and outputs. Despite these challenges, the consensus among business contacts is that inflation is expected to stabilize at a modest pace going forward. Additionally, many firms noted a marked decrease in their ability to pass on rising costs to consumers, indicating a potential softening in pricing power.

As the Federal Reserve approaches its policy meeting scheduled for April 30 to May 1, it is widely expected that the policy rate will be maintained at its current level of 5.25% to 5.50%, where it has been since last July. This decision would reflect the central bank's cautious approach in navigating ongoing economic uncertainties and its commitment to curbing inflation.

The Federal Reserve's preferred inflation measure showed an uptick to a 2.5% annual rate in February, while a core measure, which excludes the more volatile food and energy prices, indicated a higher increase of 2.8%. These figures suggest a nuanced picture of inflation, with underlying pressures remaining somewhat resistant to broader economic trends.

The employment situation has also been a focal point in the Federal Reserve's analysis. The survey indicated a slight increase in employment across the board. While there are more workers available, many districts continue to report significant challenges in attracting qualified candidates for specific jobs. This shortage persists despite some regions observing that wage growth has returned to more typical historical levels, suggesting ongoing complexities in the labor market dynamics.



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