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Fed report is finding higher fears of inflation and a potential recession

Fed report is finding higher fears of inflation and a potential recession

July 18, 2022: -On Wednesday, Federal Reserve economic survey released pointed to high recession fears and a belief that soaring inflation will last through the year-end.

The central bank’s “Beige Book,” a collection of views from 12 districts, noted the economy has been growing at a “modest” pace since the last report in mid-May.

Also, business contacts reported a general slowdown in demand, with five districts expressing “concerns more than an increased risk of recession.”

“Similar to the last report, the outlook for future economic growth was mostly negative among the reports Districts, with contacts noting expectations for more than the weakening of demand over the next six to twelve months,” the report stated.

On inflation, which has been running at its fastest annual rate since November 1981, the report found “substantial price increases” across the country. Prices in areas like lumber and steel had moderated, but there were “significant” increases in food, energy, and other commodities.

Companies, however, reported that they can still pass along the price increases to customers, a more than inflationary sign.

“While several Districts noted concerning cooling future demand, on balance, pricing power was collected, and in a few sectors, such as travel and hospitality, firms successfully passed through sizable price increases to customers with little to no pushback,” the Beige Book said. “Most contacts expect pricing pressures to persist through the year-end.”

Labor markets were still tight, though that had alleviated as demand decreased. Companies in the districts said they were considering or had given bonuses to offset rising prices.

In two districts, workers look for higher pay to compensate for inflation that reached 9.1% in June.

Recession fears have grown as consumers battered by higher prices have slowed activity, and domestic investment has cooled. The economy contracted 1.6% in the initial quarter, and the Atlanta Fed has GDP on speed to refuse 1.2% in the second quarter, meeting the rule-of-thumb recession definition.

Responding to increased costs across the board, the Fed has instituted a series of rate hikes aiming at taming inflation.

On Wednesday, following the consumer price index report that also showed inflation which excludes food and energy, increased at a brisk 5.9% pace, traders upped their bets on an aggressive Fed, which assigns an 83% probability that the central bank will hike benchmark borrowing rates an entire point at its meeting, according to CME Group data.

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