Federal Reserve economists released Wednesday a report that raised recession concerns and predicted that the Federal Reserve will maintain high inflation at least until next year.
The central bank “Beige Book,”The 12 district’s views were compiled to show that the economy is only growing “modestly” since its last mid-May report.
Business contacts also reported that there was a slowdown in demand. Five districts expressed concern about the possibility of recession.
The report said that “Similarly to the last report, the outlook on future economic growth among the reporting districts was mostly negative with contacts noting further weakness in demand over the next six- to twelve months.”
The inflation rate, which runs at its current level fastest annual rate since November 1981According to the report, there was a “substantial increase in price across the nation.” While prices in steel and lumber have slowed, there was a moderate increase in other commodities, such as food and energy.
However, the companies claimed that they can still pass on price increases to their customers.
The Beige Book said that while several Districts expressed concerns over future demand, overall pricing power was stable and firms in certain sectors such as travel or hospitality were able to pass large price increases on to their customers without much to no resistance. Most contacts anticipate that pricing pressures will continue at least until the end of this year.
Although the labor market was tight, it had eased slightly as there was less demand. In four areas, companies indicated that they had considered or given bonuses to help offset the rising price.
Workers in two areas were seeking higher wages to counter the rising inflation of 9.1% year over year in June.
As consumers have been hit hard by rising prices, recession worries have increased. Domestic investment has also slowed down. According to the Atlanta Fed, GDP is expected to fall 1.2% by the end of the second quarter. This meets the definition for a recession.
The Fed responded to the rise in costs by instituting a series of rate hikesThis is a strategy to control inflation.
After Wednesday’s consumer price index reportCME Group data also revealed that inflation, excluding food, rose at 5.9%. Traders increased their odds of a more aggressive Fed. They now believe that 83% of central banks will raise benchmark borrowing rates by a full percentage at its July meeting.
Raphael Bostic of Atlanta stated Wednesday that all options are open for rate increases. He suggested that a full percentage point (100 basis point) increase might be possible at the July 26-27 meeting. This was according to a Reuters account.