By Lindsay Dunsmuir
(Reuters) – U.S. economic activity saw little or no change from December through early January, while firms reported pricing pressures were mixed and nearly all cited signs of a cooling labor market, underscoring the tightrope the Federal Reserve continues to walk as it tries to reduce inflation while keeping growth and employment humming along.
The U.S. central bank released its latest snapshot on the health of the economy a day after Fed Governor Christopher Waller, an influential voice on its policy-setting committee, said recent data was “almost as good as it gets” with economic growth gradually slowing, the unemployment rate remaining low, and key gauges of inflation hitting the Fed’s 2% target rate for the past six months.
“A majority of the 12 Federal Reserve Districts reported little or no change in economic activity,” the Fed said in its survey released on Wednesday, known as the “Beige Book,” which polled business contacts across the central bank’s 12 districts through Jan. 8. “Consumers delivered some seasonal relief over the holidays by meeting expectations in most Districts and by exceeding expectations in three Districts.”
Firms in most districts also noted that their expectations for future growth were “positive, had improved, or both.”
Retail sales were robust in December, data from the Commerce Department showed earlier on Wednesday, suggesting consumers entered 2024 still feeling flush with cash.
The Fed is looking to begin cutting its policy rate this year after tightening economic conditions for much of the past two years to bring inflation down. It has been held in the 5.25% to 5.5% range since July and while it is set to remain unchanged at the next interest-rate setting meeting on Jan. 30-31, policymakers in December provisionally penciled in three rate cuts this year.
BUMPY PATH
By the Fed’s preferred measure, inflation in November was running at a 2.6% annual rate, down from the 7.1% peak reached in June 2022.
But, as Waller also pointed out on Tuesday, policymakers will proceed cautiously in cutting rates while they make sure lower inflation will be sustained.
The bumpy path to returning inflation to 2% was underscored last week by a separate measure of consumer prices, which increased more than expected in December, with Americans paying higher prices for shelter and healthcare. Wage gains also remain above a sustainable level.
(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)
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