The Federal Reserve’s most recent Beige Book report has raised concerns about inflation and a slowdown of the economy, including an impending recession.
The Beige Book—the shorthand name for the Summary of Commentary on Current Economic Conditions by Federal Reserve District—provides an update on economic conditions in each of the Fed’s 12 districts and is released eight times per year.
Though economic activity has expanded at a modest pace since mid-May, “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 latest Beige Book (pdf) states. The Philadelphia District reported “increased chatter” about a future recession that has negatively affected employment and wage growth as well as prices.
Most districts reported a moderation in consumer spending as higher food and gas prices ate into discretionary household income. In some districts, manufacturing activity was affected by labor shortages and supply chain disruptions.
Housing demand has also weakened due to affordability concerns.
Future economic growth outlook was “mostly negative” among the reporting districts. Many contacts talked about expectations of demand weakening further in the next six to 12 months.
The report comes as the 12-month Consumer Price Index (CPI) hit a new four-decade high of 9.1 percent in June. The data has triggered speculation that the Fed might raise interest rates by as many as 100 basis points at its July meeting, a move that would dampen economic growth and increase the possibility of a recession.
In the first quarter of 2022, the U.S. economy had contracted by a 1.6 percent annualized rate, the first decline since the second quarter of 2020.
During a webinar on June 30, Andrew Balls from investment firm PIMCO warned about America slipping into a recession over the next 12 months.
“A recession is not the only important thing. You’re clearly going to see a significant growth slowdown,” Balls said.
The Fed report also mentioned “substantial price increases” observed across all districts at “all stages of consumption.” However, nine districts reported a moderation in prices for construction inputs like steel and lumber.
“Increases in food, commodities, and energy (particularly fuel) costs remained significant, though there were several reports that price inflation for these categories had slowed compared with recent months but remained historically elevated,” according to the Beige Book.
Several districts raised concerns about a cooldown in future demand. Most district contacts are expecting pricing pressures to continue at least through the end of 2022. In the Boston District, inflation worries were reported as posing “significant threats” to economic activity in the future.
During a July 13 news conference, Sen. Mike Crapo (R-Idaho), the top GOP member of the Senate Finance Committee, denounced the Biden administration’s economic policies for worsening inflation.
When Biden came into office, inflation was 1.7 percent, he said, while highlighting the 9.1 percent inflation rate in June.
“Inflation-adjusted wages for workers are falling, consumer and business confidence has cratered, nest eggs for retirees are eroding from the double whammy of inflation and lower account values, and the odds of recession have been rising, with stagflation an imminent threat,” he said.