US economic growth “downshifted slightly” in July and last month amid shortages of workers and materials, as well as concerns about the rise of the Delta variant of SARS-CoV-2, the Federal Reserve said on Wednesday.
While shortages also caused rising wages and prices in some areas, the report of a slower recovery could add weight to pressure on the central bank to hold off withdrawing stimulus to the economy.
The US surge in COVID-19 infections has led to the return of some restrictions and delayed the return of workers to some offices.
In its “beige book” report on the economy, the Fed said the recent slowdown was largely due to “a pullback in dining out, travel and tourism in most districts.”
However, activity declined in some areas of the country due to labor issues and “pervasive resource shortages” that also were driving up prices, the report said.
With inflation picking up and progress made on restoring jobs lost during the pandemic, US Federal Reserve Chair Jerome Powell has signaled that the central bank expects to begin to pull back on its massive bond-buying program by the end of the year.
In a speech on Wednesday, the Federal Reserve Bank of New York president John Williams, cautioned that “a full recovery from the pandemic will take quite some time.”
He also echoed Powell’s position that the spike in inflation is mostly due to temporary issues and the rate should drop back to about 2 percent next year from double that currently.
A sustained rise in inflation is a concern for the White House, which on Wednesday announced an initiative to slow rising meat prices.
Linking consolidation in the meat industry to food price increases, the White House said it would invest US$1.4 billion aimed at small businesses in the food supply chain.
The Fed report said that sales of vehicles and homes in the US were depressed by low inventory, but construction rose modestly.
The analysis, prepared in advance of the Fed’s next policy meeting on Sept. 21 and 22, said that most districts are “optimistic about near-term prospects, though there continued to be widespread concern about ongoing supply disruptions and resource shortages.”
The rapid reopening of businesses following the pandemic shutdowns has posed a challenge for global shipping and production of raw materials, including a worldwide semiconductor crunch that has hit the vehicle sector.
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