Fed Says Price Rises Robust Amid Strong Demand, Supply Snags

(Bloomberg) -- The U.S. economy grew at a modest to moderate pace through mid-November while price hikes were widespread amid supply-chain disruptions and labor shortages, the Federal Reserve said.

 “There were wide-ranging input cost increases stemming from strong demand for raw materials, logistical challenges, and labor-market tightness,” the U.S. central bank said in its Beige Book survey released Wednesday. “Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy.”

The report was based on anecdotal information collected by the Fed's 12 regional banks through Nov. 19 and compiled by the Federal Reserve Bank of Chicago.

“The outlook for overall activity remained positive in most Districts, but some noted uncertainty about when supply chain and labor supply challenges would ease,” the Fed said.

Higher and more persistent inflation has led the Fed to consider speeding up how quickly they withdraw pandemic-related monetary policy support.

The U.S. central bank is currently set to phase out its bond-buying program in mid-2022 under a plan announced at the start of November to slow purchases by $15 billion a month. The policy-setting Federal Open Market Committee will meet again in mid-December, when they could make a decision to accelerate the pace of tapering. 

Fed Chair Jerome Powell said earlier Wednesday that “it's appropriate that we consider at the next meeting tapering faster so that it wraps up a few months earlier.” 

“We've seen inflation be more persistent. We've seen the factors that are causing higher inflation to be more persistent,” Powell told the House Financial Services Committee. “Policy has adapted to that and will continue to adapt.”

Regional Commentary

“Contacts in the broad finance sector noted some pickup in activity, while regional banks reported some improvement in delinquency rates and higher loan demand from commercial customers.” -- Federal Reserve Bank of New York

“While most businesses indicated that demand for their goods and services remained solid, some suggested that persistent supply-side disruptions (and associated higher costs) led some customers to put off spending until availability of products improved or costs came down.” -- Federal Reserve Bank of Cleveland

“Reports of wage increases were pervasive. Non-labor costs continued to rise, and pricing power strengthened.” -- Federal Reserve Bank of Atlanta

“Several contacts noted a shift in their approach to managing supply chain disruptions toward a strategy of holding larger inventories, adding demand for key inputs.” -- Federal Reserve Bank of Kansas City

The report said that leisure and hospitality activity “picked up in most Districts as the spread of the Delta variant ebbed in many areas.” But the results from the Beige Book only reflect information through mid-November, before the emergence of the omicron variant, which could threaten the recovery of the services sector in the coming months.  

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