U.S. economy shows few signs of sustained inflation pressure: Fed

By Lindsay Dunsmuir

WASHINGTON, (Reuters) – The U.S. economy continued to expand from mid-May through the end of June but there was little indication that inflation would surge any time soon, the Federal Reserve said on Wednesday.

Wage pressures were “modest to moderate” in most of the central bank’s districts and price pressures remained slight, the Fed said in its Beige Book report of anecdotal information collected from business contacts across the country.

Fed policymakers have been spooked by a lack of sustained progress in moving inflation up to the central bank’s 2 percent target as well as by a global growth slowdown. U.S. business investment also has been weak for two straight quarters.

The Fed raised interest rates in December for the first time in nearly a decade but has held off further increases this year.

Despite a strong rebound in U.S. job growth in June, traders see the Fed keeping rates on hold until at least mid-2017.

Pressure to raise wages at the end of the second quarter was centered on skilled workers and difficult-to-fill positions, while “price pressures remain slight, with contacts generally reporting no movement in selling prices,” the Fed said in its report.

Only three districts – Cleveland, Chicago and San Francisco – reported increased wages for entry-level staff.

With the U.S. labor market near what is considered to be full employment, economists generally have been expecting wages to rise, which in turn would help spark higher inflation. Employment continued to grow modestly, the Fed report said.

Fed districts also reported some signs of softening in consumer spending but most retained an optimistic outlook, the report said. Manufacturing activity remained mixed while growth in the services sector was seen as “slight to modest.”

The Beige Book was compiled by the St. Louis Fed with information collected on or before July 1, 2016.

The Fed’s next policy meeting is on July 26-27.

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)