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Economic outlook more pessimistic as consumers feel inflation pinch: Fed

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Investing.com — The economic outlook grew “somewhat more pessimistic” continued to expand in recent weeks, but consumers are starting to feel the inflation pinch as wage growth continues to normalize toward pre-pandemic historical averages, according to the Federal Reserve’s Beige Book released Wednesday.

“National economic activity continued to expand from early April to mid-May,” though overall outlooks “grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks,”  the Fed said in its Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through May 20.

In a sign of cooling in the labor market, the majority of districts noted “better labor availability, though some shortages remained in select industries or areas,” the Fed’s beige book showed, and flagged the slowing wage growth. 

“Several districts reported that wage growth was at pre-pandemic historical averages or was normalizing toward those rates,” the report added.

Against the backdrop of cooling wage growth, retail spending was flat to up slightly, reflecting “lower discretionary spending and heightened price sensitivity among consumers,” according to the report. 

On the inflation front, meanwhile, prices increased at a modest pace over the period, the report noted, with “price growth is expected to continue at a modest pace in the near term.”

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