Fed Says Price Pressures Are ‘Eerily Calm’
Despite a decline in export sales to Asia, the U.S. economy is thriving in all regions and labor remains in short supply--so much so that the Federal Reserve Board is finding the absence of increased inflation strange.
“Taut labor markets continue to hamper business activity in a variety of ways,” the central bank said Wednesday in its “beige book” survey. “The supply of entry-level and skilled workers . . . appears to be insufficient.”
The Fed noted that “just about every district reports that exports of many goods to Asia are dropping.” But, at least so far, that hasn’t made a big dent in the wage pressures that were the Fed’s biggest worry before the Asian economic crisis developed last fall.
Boston, one of 12 district banks that contributed to the report, said temporary-help agencies have offered wage increases of as much as 15%.
Nevertheless, effects of the Asian situation are combining with strong competition and productivity growth in the United States to restrain prices U.S. consumers pay.
“Pressures on product prices remain eerily calm,” the report said.
The San Francisco district bank said many respondents noted difficulties finding skilled and entry-level workers, and some reported larger wage increases.
The San Francisco bank also said the Western region continued its vigorous economic expansion, although growth moderated in some areas. Retail sales grew at a moderate pace, it said. The manufacturing and service sectors experienced continued strong growth, although the restraining effect of the Asian economic turmoil was evident in several sectors.
Economists who reviewed the Fed’s report, which was based on information collected before March 9, detected some uneasiness at the central bank but not enough to trigger a preemptive interest rate move against a possible acceleration in inflation.
“There’s a sense of people [at the Fed] getting uncomfortable and wondering if there are going to be price pressures down the road that aren’t there now,” said economist Robert Dederick of Northern Trust Co. in Chicago. “They’re worried about what happens on the other side of the Asian shock.”
Still, he and other analysts predicted the Fed’s policy-making committee will vote to leave interest rates alone when it meets March 31.
The report also noted that mild weather in many parts of the country, the product of the El Nino pattern, has created “unseasonably hardy” housing markets and healthy commercial real estate markets.
But conditions on the nation’s farms are mixed, it said, because “an abundance of precipitation has harmed crop prospects and delayed field preparation activities.”
