March 8 (Reuters) - U.S. economic activity increased slightly from January through late February and price increases remained widespread, but businesses reported a moderation in inflation that they expect to continue this year, the Federal Reserve said in a report on Wednesday.
The U.S. central bank released its latest temperature check on the state of the economy a day after Fed Chair Jerome Powell said policymakers may have to raise interest rates higher and possibly at a faster pace than anticipated following recent stronger-than-expected readings on the labor market, consumer spending and inflation.
The Fed raised rates last year at the fastest pace in 40 years in a bid to cool demand across the economy and bring inflation back down toward its 2% goal. But after some softening late last year, the economy has since rebounded and price increases have reaccelerated.
"Overall economic activity increased slightly in early 2023," the Fed said in the survey, known as the "Beige Book," which was conducted across its 12 districts through Feb. 27. "Amid heightened uncertainty, contacts did not expect economic conditions to improve much in the months ahead."
Fed policymakers have been keeping a keen ear on feedback from business contacts around the country as they attempt to quash price pressures without tipping the economy into recession. The Fed's benchmark overnight interest rate is currently in the 4.50%-4.75% range.
The report also noted that inflation pressures remained widespread but price increases moderated in many of the Fed's regional districts.
"Looking ahead, contacts expected price increases to continue to moderate over the year," the report said.
By the Fed's preferred measure, inflation in January was running at a 5.4% annual rate and posted its largest monthly increase since June 2022.
Making the Fed's task even more difficult, job gains surged in January and the unemployment rate fell to the lowest reading since 1969. Fed policymakers have made clear that there would have to be some easing in labor market shortages in order for wage pressures to ease.
The U.S. Labor Department reported earlier on Wednesday that job openings fell less than expected in January and data for the prior month were revised higher, pointing to persistently tight labor market conditions.
The Labor Department is scheduled to release its closely-watched employment report for February on Friday.
