Bank of Canada holds key rate, tapers bond purchases
The pace of the U.S. recovery picked up in the past two months, though reopening the economy from the COVID-19 pandemic created increasing strains in attracting workers and filling orders, the Federal Reserve said.
“The U.S. economy strengthened further from late May to early July, displaying moderate to robust growth,” the U.S. central bank said in its Beige Book survey released Wednesday. “Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods.”
The report was based on information collected by the Fed’s 12 regional banks through July 2 and compiled by the Federal Reserve Bank of Boston.
Fed officials are considering how quickly to trim monetary policy support with the expansion of COVID-19 vaccinations brightening the outlook. The Beige Book comes ahead of the Federal Open Market Committee’s next policy meeting, on July 27-28, when it’s set for further talks on the appropriate timing of scaling back asset purchases.
The FOMC has committed to reducing the US$120 billion monthly pace of bond buying after there’s “substantial further progress” on inflation and employment. Several Fed officials, including St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan, have urged the committee to move ahead with planning to withdraw stimulus.
“Healthy labor demand was broad-based but was seen as strongest for low-skilled positions,” the report said. “Firms in several districts expected the difficulty finding workers to extend into the early fall.”
Fed Chair Jerome Powell earlier Wednesday said the U.S. economic recovery still hasn’t progressed enough to begin scaling back asset purchases.
While the U.S. added 850,000 jobs last month -- the most in 10 months -- payrolls are still nearly 7 million below their pre-pandemic level.
“All districts noted an increased use of non-wage cash incentives to attract and retain workers,” the Fed said in the Beige Book. “Firms in several districts expected the difficulty finding workers to extend into the early fall.”
In the San Francisco district, for example, employers noted a widespread shortage of truck drivers and other workers in the transportation and logistics sector, which exacerbated supply-chain disruptions and delays. Moreover, employers cited a lack of immigrant labor and difficulties in obtaining worker visas.
In Chicago, while job openings were elevated, “workers were being more selective about workplace environment, scheduling flexibility, and pay,” the report found.
On the inflation front, data Tuesday showed the consumer price index surged the most since 2008 in June. Fed officials have largely written off the recent price pressures as owing to transitory factors associated with supply-chain bottlenecks and the reopening of service industries as the pandemic recedes.
“While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months,” the Fed said in the Beige Book report.
The Beige Book includes detailed anecdotes intended to give more color to complement formal reports for understanding of the economy.
A number of tourist-dependent locations reported strong recovery from COVID-19 in leisure spending, including New York City; Washington D.C.; Cape Cod, Massachusetts; and beaches that are part of the Richmond Fed district. In New York City, hotel occupancy rates climbed above 60 per cent in June, a post-pandemic high, the report found.
“Some beach communities reported record visitation, as hotels saw record-breaking occupancy and beach short-term rentals were booked solid through the summer and into the fall” in the Richmond district, which includes North and South Carolina coasts.