A US  Federal Reserve report released on Wednesday revealed that U.S. economic growth was moderate in July and August despite a cooling labour market and easing inflation pressures, which supported views that the central bank was finished raising interest rates or very near to it.

“Most Districts reported price growth slowed overall,” the Fed said in its latest “Beige Book” summary of surveys and interviews conducted across its 12 districts through Aug. 28. It added that “nearly all districts indicated businesses renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term.”

At the conclusion of its policy meeting on September 19–20, the U.S. central bank is anticipated to maintain its benchmark overnight interest rate in the current 5.25%–5.50% range while keeping the door open to one more quarter-percentage-point increase before the end of the year.

The odds that the Fed will end its rate-hike campaign, which began 18 months ago, are roughly equal in the financial markets.

However, Fed officials are still considering all of their alternatives. They contend that the 5.25 percentage point rate increases implemented since March 2022 have slowed the economy, limited job creation, and—most importantly—decelerated inflation, which surged to a 40-year high in 2017.

The economy has added an average of 150,000 jobs per month over the last three months, a steep decline from the prior three months, and data collected since the latest Fed rate hike six weeks ago has tended to corroborate that conclusion. The Fed’s favoured measure of inflation showed a decrease from 7% last summer to 3.3% in July.

Because of this, even a hawkish policymaker like Fed Governor Christopher Waller may claim that the central bank has time to consider fresh information before deciding whether to raise rates once more or keep them at their current level.

Susan Collins, president of the Boston Federal Reserve, said earlier on Wednesday that the central bank has the freedom to exercise patience while noting that, despite reducing, inflation pressures are still too high.

However, Collins went on to say that she did not think a “significant slowdown is required” to reduce inflation and that “price stability is achievable with an orderly slowdown and only a modest unemployment rate increase – ideally preserving some of the favourable labour supply dynamics.”

Despite this, employers are creating far more jobs than the 100,000 needed each month to keep up with population growth, and prices continue to climb faster than the Fed’s 2% target. Additionally, economic output looks to be considerably surpassing the less-than-2% annual growth pace that Fed officials claim is sustainable over the long term.

According to the most recent Beige Book report, many of the Fed’s 12 regional banks discovered that, despite slowing price pressures, the ebbing was most pronounced in the economy’s goods-centric sectors.

The report also noted some deterioration in the consumer sector, pointing out that an increasing number of households had used up their savings from the coronavirus outbreak and were increasingly turning to borrowing. The report also discovered evidence that more households were having trouble managing their debt.

The local safety net is being strained, according to the New York Fed district. According to the report, “housing affordability, homelessness, and food insecurity continued to challenge communities” in the San Francisco Fed district. It was also noted that “temporary housing shelters and food banks saw increased demand in recent weeks, especially from older adults.”

According to the report, housing is still a problem, and the supply of single-family houses “remains constrained.” According to the Fed, home construction was increasing, but it was becoming more difficult to develop affordable homes due to high financing prices and growing insurance premiums.

(Adapted from EconomicTimes.com)

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