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MNI BRIEF: Supply Shortages Pinch Outlook, Fed Beige Book Says

MNI (Washington)

Fed reports business concerns about shortages and rising prices.

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The U.S. economy grew at a "modest to moderate" rate in a majority of Fed districts, while several districts said the pace of expansion slowed in the survey period, constrained by supply chain disruptions, labor shortages, and uncertainty around the Delta variant, the Fed's Beige Book report said Wednesday.

Employment increased at a "modest to moderate" rate in recent weeks as demand for workers was high, but labor growth was dampened by a low supply of workers, the report said. "Many firms offered increased training to expand the candidate pool. In some cases, firms increased automation to help offset labor shortages. The majority of Districts reported robust wage growth," the report said.

Across most Fed districts there were "significantly elevated prices, fueled by rising demand for goods and raw materials," the report said. Input cost increases were widespread across industry sectors, driven by product scarcity resulting from supply chain bottlenecks, and price pressures also arose from increased transportation and labor constraints as well as commodity shortages.

The report noted expectations for future price growth varied, with some expecting prices to remain high or increase further while others expected prices to moderate over the next 12 months.

Inflation readings in upcoming months are seen as critical for the Fed in clarifying whether the string of recent high inflation readings will in fact subside as some policymakers expect or force the central bank to raise interest rates as early as next year, MNI has reported.