The U.S. economy remains in an expansion but is experiencing notable signs of a slowdown over the past month with recession concerns rising, according to the Federal Reserve’s “beige book” survey released Wednesday.
“Economic activity expanded at a modest pace, on balance, since mid-May; however, several Districts reported growing signs of a slowdown in demand, and contacts in five Districts noted concerns over an increased risk of a recession,” the report said.
“Similar to the previous report, the outlook for future economic growth was mostly negative among reporting Districts, with contacts noting expectations for further weakening of demand over the next six to twelve months,” its review of national economic conditions concluded.
The release comes on the same day that the government reported consumer prices rose at an annual rate of 9.1% in June, the highest level since late 1981. The increase was driven largely by energy and food costs, but housing was also a large contributor.
The beige book noted the rising prices in many Federal Reserve bank districts but also that some were reporting some moderation in areas like construction supplies. But, it said that “most contacts expect pricing pressures to persist at least through the end of the year.”
That is the scenario the Fed faces as it contemplates another large increase in interest rates later this month to follow June’s 75 basis point hike: a slowing economy that is also facing rampant price pressures.
Looking into the data, inflation remains embedded within multiple segments of the economy even when stripping away food and energy prices,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said following the CPI’s release Wednesday morning.
“As a result, the Fed is likely going to send a hawkish message at the July meeting, and it would be a mistake to think that a rate hike less than 75 basis points is in the cards,” Ripley added. “The question that remains from here is how high the Fed will have to raise rates to bring down inflation and a CPI print like today could put a 4% policy rate on the horizon fairly soon.”
Some analysts had predicted that inflation had reached a peak in May, but Wednesday’s data showed that to be wishful thinking. And now the goal post has been moved to next month when July’s CPI will be released.
But, as the beige book shows, companies still expect to be dealing with rising prices for some time to come.
One component of the CPI has been turning down of late, with gasoline prices off by 35 cents or more since the data was collected, a point President Joe Biden made from Israel where he is on the first leg of a Mideast trip.
“While today’s headline inflation reading is unacceptably high, it is also out of date,” Biden said. “Energy alone comprised nearly half of the monthly increase in inflation.”
“Today’s data does not reflect the full impact of nearly 30 days of decreases in gas prices that have reduced the price at the pump by about 40 cents since mid-June,” Biden said. “Those savings are providing important breathing room for American families. And, other commodities like wheat have fallen sharply since this report.”
While White House officials have stressed the backward-looking nature of the report, the CPI showed inflation broadening out and, in some cases, accelerating last month. The Fed is committed to taming the beast of inflation, but the price could well be a recession.
And a new Pew Research Center survey out Wednesday showed the toll inflation is taking on Americans and the political fallout from it.
“According to the survey, conducted June 27-July 4 among 6,174 U.S. adults on Pew Research Center’s American Trends Panel, the public’s views of the national economy have worsened since the start of this year,” the survey found. “Today, just 13% of adults say economic conditions in the United States are excellent or good – 28% said this six months ago.”
And they blame Biden. “A majority of Americans say Biden’s policies have hurt the economy: 56% say his policies have made economic conditions worse, compared with just 11% who say his policies have improved the economy. About a third (32%) say they have not had much of an effect.”
News Source: US News
