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US economic prospects becoming more pessimistic, Fed says

The Federal Reserve building is pictured in Washington, DC, US, August 22, 2018. (Reuters photo)

The United State’s economic prospects are becoming “more pessimistic,” according to a new report by the US central bank.

In its report on Wednesday, the Federal Reserve said economic activity has slowed down and demand is weak because of rising interest rate, high inflation, and supply disruptions.

“Outlooks grew more pessimistic amidst growing concerns about weakening demand,” it said in the report, which was compiled by the Dallas Fed from contributions received through Oct. 7.

Since March, the Federal Reserve has raised interest rate five times in a bid to tame inflation and avoid a possible recession. Yet, it says more interest rate hikes are on the way because the rise was needed to counter inflation.

The inflation has reached a 40-year high of more than eight percent. Households are grappling with rising cost of living exacerbated by supply chain problems, and skyrocketing energy prices due to the war in Ukraine.

Recent surveys have found that three out of four middle-class Americans feel that their income cannot keep up with soaring inflation. Most Americans are preparing for a recession by cutting back on spending, delaying major purchases, or planning to work longer before retirement.

Meanwhile, reports into the Cleveland Fed, for one, said higher prices and interest rates were constraining demand, not only for housing but increasingly for motor vehicles as well.

"Auto dealers reported flat or decreasing sales, noting that consumers had become wary of higher payments because of increased interest rates and higher vehicle prices," the Cleveland Fed reported.

The Federal Reserve also said in its Wednesday report that the labor market was seen as “tight”.

“Several districts reported a cooling in labor demand, with some noting that businesses were hesitant to add to payrolls amid increased concerns of an economic downturn,” the report said. “There were also scattered mentions of hiring freezes.”

Fed Chairman Jerome Powell has previously warned of “pain” to come for businesses and consumers alike.

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