Economy slows, recession fears grow, Fed’s ‘Beige Book’ finds

The U.S. economy is still on the upswing but has been showing notable signs of slowdown over the past month with recession fears mounting, according to the Federal Reserve’s “beige book” survey. was announced on Wednesday.

“Economic activity has expanded at a modest, balanced pace, since mid-May; however, several Counties have reported growing signs of a decline in demand, and contacts in 5 Counties have noted concerns of an increased risk of a recession,” the report said.

Similar to the previous report, the outlook for future economic growth is mostly negative among reporting counties, with contacts noting that demand will continue to weaken over the next six to twelve months. coming”, the assessment of national economic conditions concludes.

The announcement came 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 largely due to energy costs. and food, but housing also makes a big contribution.

The beige book notes rising prices in many of the Federal Reserve’s banking sectors but also some reports of regulation in areas such as construction supplies. However, it said that “most contacts expect the price pressure to persist at least through the end of the year”.

That’s the scenario the Fed faces as it expects another big rate hike later this month after a 75 basis point hike in June: a slowing economy is also facing pressure. price force pervasive.

Looking at the data, inflation is still contained in many segments of the economy even excluding food and energy prices,” said Charlie Ripley, senior investment strategist at Allianz Investment Management, in a note later. on the release of CPI on Wednesday morning.

“As a result, the Fed is likely to send a hawkish message at its July meeting and it would be a mistake to think that a rate hike below 75 basis points is on the cards,” added Ripley. “The question remains as to how much the Fed will have to raise rates to bring down inflation, and CPI readings like today could soon lead the policy rate to 4% into the future.”

Some analysts had predicted that inflation would peak in May, but Wednesday’s data suggested that was wishful thinking. And now the target has been moved to the month after the July CPI will be released.

However, as the beige book shows, companies still expect to cope with rising prices for some time to come.

One component of the CPI has fallen at the end of the year, with gasoline prices down 35 cents or more since the data was collected, a view President Joe Biden took from Israel, where he is in the early stages. the first of the Mideast tour.

“While the headline inflation headlines are unacceptably high today, it’s also outdated,” Biden said. “Energy alone accounted for nearly half of the monthly increase in inflation.”

“Today’s data doesn’t fully reflect the impact of the nearly 30-day drop in gas prices that has caused prices at the pump to drop about 40 cents since mid-June,” Biden said. “Those savings are providing vital breathing room for American families. And, other commodities like wheat have plummeted since this report.”

While White House officials emphasized the out-of-date nature of the report, the CPI showed inflation was expanding and, in some cases, accelerating last month. The Fed is committed to tame the inflation monster, but prices could be a recession.

And a new survey by the Pew Research Center on Wednesday found that toll inflation is taking its toll on Americans and its political implications.

According to the survey, conducted from June 27 to July 4 among 6,174 US adults on Pew Research Center’s US Trend Table, public opinion on the national economy has worsened since the beginning of this year,” the survey found. “Today, only 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 their His books improved the economy. About a third (32%) say they don’t have much of an effect.”