Fed's Beige Book: Economy Continued to Expand at Modest Pace

WASHINGTON-The U.S. economy continued to expand at a modest pace across most regions through the end of last year and firms expressed optimism about growth in 2017, a Federal Reserve report said Wednesday.

"Many Districts said contacts expect labor markets to continue to tighten in 2017, with wage pressures likely to rise and the pace of hiring to hold steady or increase," said the report, which is based on anecdotes in the Fed's regional survey of economic conditions known as the beige book.

The survey collected anecdotal information on economic activity from 12 district banks from late-November through Jan. 9. Most districts indicated that wages increased modestly, and eight out of twelve saw modest price increases.

The beige book offered a broadly upbeat view of conditions across the country, although one cloud was retail spending. While most places said retail sales expanded during the holiday season, several said they were disappointing. Retailers' selling prices suffered due to competitive discounting, and "reports in more than one district suggested that growth in e-commerce had come at the expense of bricks-and-mortar retailers."

The prior beige book report, released on Nov. 30, had found some businesses reported uncertainty in the wake of President-elect Donald Trump's victory. While some industries continued to report uncertainty about the impact of possible policy changes by the new administration in the latest report, a number of businesses expressed optimism about the incoming administration.

In both Cleveland and Dallas, bankers reported a more positive outlook on hopes of regulatory or tax relief following the presidential election.

The report came two weeks before the Fed's next scheduled policy meeting, which runs Jan. 31 to Feb. 1. Economic forecasters and financial markets widely expect the central bank to hold short-term interest rates at a range between 0.50% and 0.75% at the meeting.

Federal-funds futures, used by investors and traders to place bets on central-bank policy, earlier Wednesday indicated just 4% odds for a rate increase at the next policy meeting, according to data from CME Group.

The Federal Reserve raised short-term interest rates by a quarter percentage point for only the second time in a decade at its last meeting, in mid-December. Fed officials are expecting to raise rates this year by another 0.75 percentage point, likely in three quarter-point moves.

The Fed's beige book was released in a new format Wednesday, aimed at conveying its main messages more effectively. The report can be accessed at: https://www.federalreserve.gov/monetarypolicy/beigebook/default.htm

Write to Harriet Torry at harriet.torry@wsj.com