US Fed flags expectations of ‘slower growth’ in economy

The US Federal Reserve Building is seen in Washington, DC, May 3, 2023. The US Federal Reserve is widely expected to raise its benchmark lending rate for a 10th — and possibly final — time, as it aims to bring down inflation while preventing fresh banking concerns from spreading. (Photo by SAUL LOEB / AFP)

Washington, United States — Prospects for the US economy appear to be flagging with slower growth expected in the coming months, as November’s presidential election and inflation contribute to uncertainty, the Federal Reserve said Wednesday.

There has been “slight to modest” growth in economic activity in most parts of the country over recent weeks, the central bank said in its “beige book” survey of economic conditions.

But a growing number of districts have reported “flat or declining activity,” it said.

READ: US Fed official suggests apt to cut rates sooner if layoffs rise

“Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation,” the Fed said.

The bank has been closely monitoring the world’s biggest economy for signs of cooling, as it mulls the right time to start lowering interest rates.

The Fed has held rates at the highest level in over two decades in hopes of sustainably bringing inflation back toward its long term two-percent target.

A series of encouraging data recently, including a slower than expected inflation figure, have fueled optimism that the Fed can begin reducing rates in September.

For now, wages continue to grow in most areas according to the Fed’s report, although demand for consumer and business loans was soft.

READ: Fed would not wait for 2% inflation to consider rate cut: Powell

Employment ticked up as well, with most districts reporting flat or slight growth, said Wednesday’s report.

The Fed has been focused on reining in runaway inflation in the wake of the pandemic, but is now also closely eyeing its mandate of promoting maximum employment, Fed Chair Jerome Powell said this week.

“If we were to see an unexpected weakening in the labor market, then that might also be a reason for reaction by us,” Powell said.

On Tuesday, Federal Reserve Governor Adriana Kugler noted that if the labor market cools too much, with layoffs driving a continued rise in unemployment, it might be apt to cut rates sooner.