Fed sees modest growth but says optimism tempered by virus resurgence

(Reuters) – U.S. economic activity increased modestly in recent weeks and a growing number of Federal Reserve districts saw a drop in employment as a surge in coronavirus infections led to more shutdowns, the U.S. central bank said on Wednesday.

In the Fed’s latest “Beige Book” report, a collection of anecdotes from businesses across the country, Fed officials revealed how the pandemic’s imprint varied by region and industry as rising infections dampened the optimism promised by the arrival of effective coronavirus vaccines.

“Although the prospect of COVID-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions,” the Fed noted in the report.

While manufacturing activity continued to recover in almost all Fed districts, reports on consumer spending were mixed.

The U.S. economy shed 140,000 jobs in December as the country faced a surge of COVID-19 infections, the first loss of jobs in eight months and a sign that the economic recovery could be losing momentum.

But analysts and Fed officials say there is reason to think the economy may rebound in the second half of 2021, bolstered by the rollout of coronavirus vaccines and a fresh round of pandemic-related government aid.

A $900 billion relief package passed in late December should help to backstop the economy until the spring.

The outlook for more stimulus in the near term increased last week when Democrats won two runoff races that will give them effective control of the U.S. Senate, making it easier for President-elect Joe Biden’s incoming administration to get legislation through Congress. Democrats already control the U.S. House of Representatives.

Fed officials have reiterated their promise to keep short-term interest rates low and to maintain the central bank’s asset purchases until the economy is on more stable footing. The Fed’s next policy meeting is scheduled for Jan. 26-27.

The Beige Book was prepared at the San Francisco Fed based on information collected on or before Jan. 4, 2021.