US firms grow more pessimistic on economic outlook, Fed survey shows
Lindsay Dunsmuir

May 29 (Reuters) - U.S. economic activity continued to expand from early April through mid-May but firms grew more downbeat about the future amid weakening consumer demand while inflation continued to increase at a modest pace, a U.S. Federal Reserve survey showed on Wednesday, as central bankers mull how long they will need to keep interest rates at current levels.

The U.S. central bank's latest temperature check on the health of the economy also showed that the jobs market continues to gradually cool back down toward more normalized levels.

The survey, released roughly every six weeks, comes as policymakers remain uncertain on when to start a rate-cutting cycle after holding interest rates in the range of 5.25% to 5.50% for the past 10 months. They are keenly watching trends in activity, jobs and pricing pressures in order to make their decision.

"National economic activity continued to expand...however, conditions varied across industries and districts," the Fed said in its survey, known as the "Beige Book," which polled business contacts across the central bank's 12 districts through May 20. "Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risk."

Waning consumer demand was an ongoing concern for many firms, the Dallas Fed noted, while the continued conflict in the Middle East and further geopolitical tensions across the world were also cited as downside risks.

Most Fed districts reported slight or modest growth in economic activity, while two noted no change, the survey said. In particular, retail spending was described as flat to up slightly, echoing recent data that indicated consumers are pulling back on spending.

The Fed's benchmark interest rate is set to remain unchanged at the next policy meeting on June 11-12 and Fed officials, while all but ruling out another rate hike, have indicated they need consistent encouraging inflation data over a number of months before lowering borrowing costs after being stung by bigger-than expected price increases the first three months of the year.

While that worrying trend seems to have reversed in April inflation currently remains, by the Fed's preferred measure, almost a percentage point higher than its 2% target rate. The latest reading of the Fed's key inflation gauge is scheduled for release on Friday.

 

 

Lindsay Dunsmuir currently covers the U.S. Federal Reserve and economy for Reuters. Born and brought up in Scotland, she completed her undergraduate degree in Spanish and European History at Edinburgh University before graduating with honors from the Master of Science in Journalism program at Columbia University. She began working for Reuters in New York, before moving to DC two years ago.

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