Federal Reserve survey show that US firms are pessimistic about economic growth this year

• The Fed released its most recent survey on the health of the economy.
• Five of the 12 districts reported moderate or modest gains in overall economic activity.
• The number of job postings in the US decreased less than anticipated in November.
• The benchmark overnight lending rate now rests in a target range of 4.25%–4.50%.
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According to a Federal Reserve survey released on Wednesday, there were some promising indicators that the US’s labour shortage and price pressures were lessening. However, economic activity was muted because the central bank’s policies are detrimental to growth.

According to the US central bank, five of the Fed’s districts reported moderate or modest gains in overall economic activity over the past several weeks, while six indicated no change or slight losses from the prior reporting period, and one highlighted a large decline.

After a flurry of recent data raised hopes that too-high inflation is on a sustainable path downward, with wage increases moderating and a scramble for available workers somewhat lessening, the Fed released its most recent survey on the health of the economy derived from business contacts nationwide.

But while the Fed attempts to reduce demand throughout the economy, that is paired with the price of such action.

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“On balance, contacts generally expected little growth in the months ahead,” the Fed reported in its “Beige Book” survey, which was carried out through January 9 in each of its 12 districts.

According to government data released earlier on Wednesday, US retail sales declined by the most in a year in December, placing consumer spending and the economy as a whole on a worse growth trajectory going into 2023.

In order to combat persistently high inflation, the Fed has increased interest rates over the past year at the fastest rate in 40 years. However, now that progress is being made, policymakers are growing more confident that they will reach a stopping point this spring with the policy rate at around 5%.

Investors anticipate that the Federal Reserve will increase its policy rate by a quarter point at the conclusion of its upcoming two-day meeting on January 31–February 1; the benchmark overnight lending rate now rests in a target range of 4.25%–4.50%.

However, there was more good news on inflation. Nearly half of all Fed districts stated that wage pressures had decreased, and many Fed districts noted that the rate of rises had moderated from that of recent reporting periods.

“On balance, contacts across Districts said they expected future price growth to moderate further in the year ahead,” according to the report.

Despite this, the survey stated that “while some districts noted that labor availability had increased, firms continued to report difficulty in filling open positions.”

Although the number of job postings in the United States decreased less than anticipated in November, the labour market remained tight, and inflation by the Fed’s preferred metric is still about three times the central bank’s 2% goal rate.

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