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US Federal Reserve forecasts economic uncertainty

October 21, 2021

The US Federal Reserve's "beige book" on economic conditions reports pandemic-related uncertainty. Supply bottlenecks and labor shortages have slowed US growth and contributed to inflation.

The US Federal Reserve Bank
Interest rates in the US have remaned ultra-low since the pandemic beganImage: picture alliance/Zuma Wire/C. Myers

The US Federal Reserve said Wednesday supply chain bottlenecks and labor shortages have caused US economic growth to slow down and resulted in inflationary pressures in its "beige book" report.

The bottlenecks in critical sectors such as semiconductors have resulted in "significantly elevated prices" in much of the US. The uncertainty has elevated concerns about the state of the economy.

The Fed forecasts a temporary supply chain, inflationary struggle

The US economy faces pressure from supply chains, labor shortages and uncertainty over the delta variant of the coronavirus. However, the Fed's latest survey of business conditions around the US reveals consumer spending, the main driver of the economy, remains quite strong.

The DaimlerChrysler Jefferson North Assembly Plant's assembly line in Detroit
Auto manufacturers are feeling the North American supply chain crunchImage: Getty Images/B. Pugliano

Auto sales are flailing as manufacturers struggle to obtain semiconductors and steel, which are key components. Labor shortages are also forcing companies to charge more or cut back hours of operation, especially in the service, hospitality and manufacturing sectors.

"Firms reported high turnover as workers left for other jobs or retired," the Fed said in its report, noting, "Child-care issues and vaccine mandates were widely cited as contributing to the problem."

To entice workers, many companies are offering more training, increased wages, signing and retention bonuses, flexible work schedules or increased vacation time.

However, the Fed said the economic outlook remained strong despite the setbacks which are expected to be temporary even as the coronavirus crisis remains a protracted one.

The Fed's benchmark interest rate has remained ultra-low at zero to 0.25% since the COVID pandemic began in early 2020. There are growing calls to raise interest rates to tamp down the tide of inflation.

The Federal Reserve seal
The Fed's 'beige book' wll guide discussions when US central bank officials meet early next monthImage: Reuters/File Photo/Y. Gripas

What is the beige book?

The beige book is a report on US economic conditions based on surveys carried out of business contacts by the Fed's 12 regional banks. The latest survey took place on or before October 8 and will form the basis of discussions at the next meeting of central bank officials in early November.

It is expected that the Fed will begin to reduce its monthly bond purchases of $120 billion (€103 billion) starting in either November or December following that meeting. These bond purchases are designed to boost the economy by keeping long-term interest rates low.

In the second half of next year, rate hikes are expected as well.

ar/sri (AFP, AP)