The financial crisis in Asia is applying the brakes to U.S. growth and putting pressure on manufacturers and retailers to hold down prices, the Federal Reserve suggested Wednesday in its latest reading on the economy.
Although the Fed said retail sales have fueled further expansion, “labor shortages, shipping bottlenecks and continued weakness in East Asia were beginning to temper growth.”
That contrasts with the Fed’s previous regional outlook report in mid-June, when it described the U.S. as enjoying an “excellent” combination of continued growth and low inflation.
The new report was compiled by the Federal Reserve Bank of San Francisco, whose region has been particularly attuned to trade flows with Asia.
Inflation is largely in check as “goods prices remained stable,” the report said Wednesday. Price concerns have passed through to retailers, the report said, suggesting that corporate profits are also threatened. “Manufacturers and retailers reportedly cannot sustain price increases in the current competitive environment.”
The Fed is “looking at Asia more closely and feeling its impact,” while still acknowledging the domestic economy continues to pack a potent punch, said Brian Wesbury, chief economist at investment firm Griffin, Kubik, Stephens & Thompson in Chicago. That suggests Fed policymakers are unlikely to alter interest rates at their next meeting on Aug. 18, as most analysts expect.
“They don’t know which way things are going to play out,” Wesbury said.
