Fed Beige Book: Tax overhaul is boosting US wages

The tax overhaul that President Donald Trump signed in December has allowed employers to increase wages, although inflation in the U.S. remains moderate, the Federal Reserve said Wednesday.

The central bank’s Beige Book, a collection of anecdotal reports from 12 Fed districts, said businesses saw “modest increases in compensation” after the passage of the $1.5 trillion tax-cut package. The Federal Reserve Bank of Cleveland noted that the Tax Cut and Jobs Act is enabling firms to invest more and boost worker pay. In the Boston district, according to the Fed, one large retailer plans to pass half of its savings from tax cuts to workers and a smaller retailer will raise salaries to match competitors.

The latest Beige Book comes two weeks before the policy meeting in March, when the Federal Open Market Committee is expected to hike interest rates for the first time in 2018. Investors are closely watching the Fed for clues about interest rates and its outlook for the U.S. economy. While the Fed has telegraphed three rate hikes this year, recent economic reports have signaled a possible acceleration in inflation, which could encourage policy makers to raise interest rates at a faster clip.

In its Beige Book, the Fed noted that the U.S. economy expanded at a “modest to moderate pace” in January and February, a slight downgrade from its previous view of “solid” growth.

Some Fed districts reported worker shortages and “brisk demand” for qualified workers, adding that wage growth picked up at a “moderate” pace. Facing worker shortages, employers are raising wages and expanding benefit packages, according to the Fed.