Fed (Beige Book): Economic slowdown in May – Inflationary pressures intensify

The economy in most U.S. regions expanded moderately from April to the end of May, with indications that the Federal Reserve’s moves to “warm up” demand have begun to be felt, the Federal Reserve said in its latest Beige Book report. current economic conditions in the United States, published on Wednesday.

The latest data on the health of the US economy comes at a critical time for the US Federal Reserve, as from today it intensifies the quantitative tightening, starting the process of shrinking its balance sheet that erupted in the midst of the coronavirus pandemic, in its attempt to “tame” inflation, which is still moving at a high of 40 years.

It is noted that the Fed raised its interest rates by half a percentage point last month, in the range of 0.75% -1%, while planning increases of the same magnitude in both June and July.

Federal Reserve Chairman Jerome Powell has said that policymakers will continue to raise interest rates until inflation, which is three times higher than the 2% target set by the Fed, falls “clearly and convincingly.” ” way.

In particular, according to the Fed report, there are signs that companies and consumers are beginning to respond.

“The retail sector is reporting a slowdown as consumers face higher prices, while the residential real estate industry is weakening as buyers also face higher prices and rising interest rates,” the Fed said in a statement. which summarizes data from all 12 districts of the US Federal Reserve.

The Fed is facing a difficult task of reducing demand in the economy enough to curb rising living costs without causing a recession. But this is not helped by persistent supply chain problems, an uncontrollable factor exacerbated by recent lockdowns in China to curb new coronavirus outbreaks, but also by the sharp rise in food and energy costs. has been provoked by the war Russia is waging in Ukraine.

According to the Fed, the most important challenges facing US companies are the difficulty of meeting their needs in the workforce and the problems in supply chains. Rising interest rates, inflation, the Russian invasion of Ukraine and the problems caused by the pandemic add to the key concerns affecting households as well as business plans.

However, the Fed report also shows some worrying signs, as eight of the 12 regions report that expectations for growth in the near future have decreased, with three regions even expressing fears of a possible recession.