US supply bottlenecks, labour shortage hitting production: Fed

Fed officials have repeatedly stressed that price spikes are expected to be temporary.
Fed officials have repeatedly stressed that price spikes are expected to be temporary.PHOTO: AFP

WASHINGTON (AFP) - American businesses remain optimistic as the recovery from the pandemic accelerates, but supply disruptions and labour shortages have begun to hit prices and output, the US Federal Reserve said on Wednesday (June 2).

The spread of Covid-19 vaccinations contributed to the "somewhat faster rate" of economic expansion in recent weeks, but "significant supply chain challenges continued to disrupt production," the Fed said in its "beige book" survey of economic conditions.

While hiring increased in most of the Fed's 12 regions, employers continued to struggle to fill open positions, which "prevented some firms from increasing output" and in a few cases forced cuts in hours of operation.

The report, prepared ahead of the Fed's next policy meeting on June 14-15, likely will intensify worries about how the United States central bank will respond to rising prices.

Fed officials have repeatedly stressed that price spikes are expected to be temporary, largely due to the rebound from the sharp declines in the early stage of the pandemic last year and to hiccups in restarting the economy and supply chains.

The Fed's preferred inflation measure jumped 3.6 per cent in April compared with a year earlier, but officials remain confident the rate will drop closer to two percent in coming months.

Investors are worried that the central bank might feel obliged to tap the brakes on its easy money policies, despite assurances from Fed policymakers that they have no plans to pull back on their stimulative bond-buying program or raise borrowing rates.

While the beige book notes that selling prices increased only moderately, "input costs rose more briskly" across the board, and were intensified by supply issues.

However, strong demand allowed some businesses to pass much of the cost increases along to their customers.

Meanwhile, hiring challenges were seen nationwide and the Fed noted that "a growing number of firms offered signing bonuses and increased starting wages to attract and retain workers."

In the Minneapolis district, "a Minnesota staffing firm with multiple offices said every location had at least 100 job openings".

However, "job service contacts reported low wages as a moderate or significant barrier keeping job seekers from taking available jobs".