The U.S. economic growth outlook deteriorated over the summer even as record-high consumer prices showed signs of decelerating, according to a new Federal Reserve report.
In its region-by-region roundup of anecdotal information known as the Beige Book, the Fed reported that price levels "remained highly elevated" in its 12 districts from mid-June through August that the report covers, although nine districts reported some degree of moderation in their rate of increase.
Most businesses anticipate that high prices will persist for the remainder of the year.
"Substantial price increases were reported across all Districts, particularly for food, rent, utilities and hospitality services," the report said. "While manufacturing and construction input costs remained elevated, lower fuel prices and cooling overall demand alleviated cost pressures, especially freight shipping rates."
The Federal Reserve has been raising interest rates at the fastest pace in decades as it seeks to crush the hottest inflation in four decades. Policymakers approved back-to-back 75 basis point interest rate hikes in June and July and have signaled that another increase of that magnitude is on the table during their September meeting.
There is a growing consensus on Wall Street that the Fed will trigger a recession with its war on inflation. Hiking interest rates tends to create higher consumer and business loan rates, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago, and some credit card issuers have ratcheted up their rates to 20%.
That sentiment has spread throughout the Fed's regions; the Beige Book reported that the outlook for future economic growth remained "generally weak" over the summer, with businesses expecting a "further softening of demand over the next six to 12 months."
Gross domestic product (GDP), the broadest measure of goods and services produced in the country, already fell for two straight quarters, with the economy shrinking by 1.6% from January to March and falling by another 0.6% in the period from April to June.
Still, the Beige Book showed that overall economic activity remained unchanged over the summer, with five districts reporting slight to modest growth in activity, and another five reporting slight to modest softening.
"Most Districts reported steady consumer spending as households continued to trade down and to shift spending away from discretionary goods and toward food and other essential items," the report said.