Fed cites weak US economic outlook amid 'softening' demand

Prospects for the US economy are flagging as high prices have forced Americans to focus more of their spending on staples and demand is expected to weaken further, according to a Federal Reserve report Wednesday.

The US central bank has been raising interest rates aggressively to cool demand in a bid to tamp down inflation that has reached the highest in more than 40 years, all while hoping to avoid pushing the world’s largest economy into a downturn.

Recession fears remain fairly widespread, but there are signs that wage and price pressures are beginning to ease, according to the Fed’s latest “beige book” survey of economic conditions.

“The outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months,” the report said.

American families have been struggling with a surge in prices, exacerbated by supply chain woes, Covid lockdowns in China and soaring gasoline prices due to Russia’s war in Ukraine.

The Fed this year has increased the benchmark lending rate four times, including two massive three-quarter point hikes, with another possible later this month.

The report surveys firms and other contacts throughout the Fed’s 12 districts in preparation for its next policy meeting from September 20-21, when another big rate hike is possible, and signs of slowing could offer policymakers evidence their efforts are working.

The beige book said several regions reported that auto sales “remain muted,” and manufacturing slowed, while “residential real estate conditions weakened noticeably as home sales fell in all twelve Districts.”

But there were signs of improvement in the availability of workers — a positive sign after months of complaints from employers struggling to fill open positions.

And although wages continued to rise nationwide, the Fed said there were “reports of a slower pace of increase and moderating salary expectations were widespread.”

But recession fears also were widespread, meriting mentions in several districts.