Thursday, February 2, 2023

Federal Reserve Admits Supply Chain Crisis Is Killing the Economy

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( – COVID-19 hit the United States and the rest of the world hard. Economies across the globe are still working to overcome the brief yet severe recession. Experts foresee even more road bumps ahead on the road to recovery, with the United States and other countries struggling to move forward. 

Strong Demand

Demand from consumers in the US skyrocketed during the pandemic, leading to increased prices. Some experts believe higher demand signifies a growing economy. Perhaps that’s typically the case, but not this time. While demand has risen among US consumers, supply chain issues have caused prices also to surge, resulting in the highest inflation rate the country has seen in decades. 

A Stifling Economy

According to the Federal Reserve, the US economy has begun making a comeback. Unfortunately, the Reserve also noted that labor shortages, supply chain issues and increasing inflation are obstacles to economic growth. The central bank indicated that consumer spending has increased in most of its 12 districts. Despite the increased spending, the Federal Reserve asserted that material and labor shortages have kept economic growth to a modest to moderate rate.

The Beige Book

The central bank’s “Beige Book” records economic data throughout the year and publishes its findings eight times annually. Between October and November, the book shows strong demand and an overall positive outlook. But some districts did show concern about when the supply chain crisis and labor shortages would alleviate. The report didn’t include fears of the new Omicron COVID-19 variant.

The Federal Reserve’s book noted that financial conditions in the agriculture field improved between October and November while all districts enjoyed manufacturing growth, high demand for loans and non-residential real estate activities. However, some industries struggled. For example, while there was a high demand for construction, supply and staff shortages held the industry back. As a reflection of global supply issues, the automobile industry experienced low inventories in the report. 

The “Beige Book” also showed prices increased at a higher rate than the economy’s growth. The report indicated that the inflated prices resulted from increased demand for raw goods, labor issues and logistical alterations. 

While many businesses did enjoy boosts in employment, they’re having a hard time keeping workers. The report noted that COVID-19 was the primary restricting force behind the labor shortages in all districts. The federal mandate of the COVID-19 vaccine also proved to be a thorn in the side of businesses attempting to keep employees, especially in the medical field. Some companies have decided to increase wages and improve benefits in the hopes of retaining their workforce. 

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