Fed's Beige Book says U.S. economy picked up speed while inflation, labor market cooled

By Jeffry Bartash

Fed on track to cut interest rates later this year, Chair Powell said Wednesday

The U.S. economy accelerated slightly in early 2024, a Federal Reserve survey found, noting that the outlook for the rest of the year was "generally positive."

The latest findings by the so-called Beige Book dovetail with comments by Fed Chair Jerome Powell on Wednesday. Powell told Congress a few hours before the report that "what we are seeing so far this year is continued solid growth."

He said the Fed expects to cut interest rates later this year if inflation continues to slow steadily toward the central bank's 2% target.

The Beige Book, the Fed's regular survey of the U.S. economy, covered the six weeks leading up to Feb. 26. It was prepared ahead of the Fed's next meeting on March 19-20.

Here are the highlights of the report:

Economy

Eight of the Fed's 12 regional banks, ranging from Boston to San Francisco, reported a pickup in growth. One one district found a "slight softening" in economic activity.

Consumer spending tapered off a bit, however. Poor weather explained some of the slowdown, the Fed said, but higher prices due to inflation also played a role.

Shipping disruptions in the Red Sea tied to attacks by Yemen's Houthi rebels did not have much impact.

The creditworthiness of U.S. households and businesses was healthy, the Fed said, despite rising delinquencies in paying loans back.

Inflation

The deleterious effects of high inflation haven't gone away, the Beige Book said, but prices moderated again early in the new year.

Businesses have also found it harder to pass their own higher costs onto customers, "who became increasingly sensitive to price changes."

The rate of inflation rose at a 3.1% annual pace as of January, according to the most recent consumer-price index.

While that's still above the Fed's 2% goal, it's down sharply from a 40-year peak of 9.1% in June 2022.

Labor market

The Fed said the labor market continued to soften, meaning companies found it easier to hire or retain current employees. Only very highly skilled employees were particularly difficult to find.

Wages rose at a slower pace, the Beige Book said, and employees' expectations of future pay hikes were more in line with historical increases.

-Jeffry Bartash

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03-06-24 1434ET

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