Views on US economy ‘more pessimistic’ as uncertainty grows: Fed

OUTLOOKS on the US economy have become gloomier with reports of rising uncertainty and worries over risks, even though growth broadly continued recently, the Federal Reserve said on Wednesday.

The views come as discretionary spending cooled and consumers became more sensitive to costs in recent weeks, while job gains were largely modest to negligible, the US central bank said in its “Beige Book” survey of economic conditions.

Across the United States, economic activity remained positive from early April to mid-May. But conditions varied across industries and districts, the report said.

After rapidly hiking interest rates in 2022, the Fed has in recent months held them at a high level in hopes of stamping out stubborn inflation by lowering demand.

But at policymakers’ most recent meeting in May, they cited a lack of further progress towards a two per cent inflation target in keeping the benchmark lending rate unchanged.

All eyes are on indications that the Fed could start cutting rates – and a cooler economy could spur such optimism.

‘Holding up well’

“Ten of the twelve Federal Reserve districts reported an increase in economic activity in the latest Beige Book, the same as in April,” said Michael Pearce, deputy chief US economist of Oxford Economics.

He noted that anecdotal evidence in the report suggests that expansion is “still being driven by a resilient consumer.”

“Interest rate sensitive parts of the economy are also holding up well, despite high rates curbing lending demand,” Pearce said in a note.

Tight credit standards and high interest rates have been holding back growth in lending, while the elevated rates have also hit housing sales.

With prices still rising, consumers in most of the Fed’s 12 districts “pushed back against additional price increases,” leading to smaller profit margins, the Fed report said.

Meanwhile, some districts have “noted a pullback in hiring expectations amid weaker business demand.”

“Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks,” added the report.

Such uncertainties include the level of consumer demand, timing of Fed rate cuts and outcome of the US presidential election.

The Fed is due to hold its next policy meeting in mid-June. AFP