Fed Flags High Energy Prices as Major Economic Uncertainty

The US Federal Reserve has expressed a positive outlook on the country's economy but notes that high energy prices, policy issues, and the Iran war are weighing on industry and household sentiment.

Economic activity nationwide increased modestly since early July, with consumer spending growing slightly. However, high inflation has resulted in price sensitivity among consumers, with lower-income households reducing spending while higher-income households continue to show solid numbers.

The Fed's findings are consistent with the 'K-shaped' economy trend in the US, where lower-income households are being hit hardest by high prices and volatile economic performance metrics. This is a key issue going into November's midterm elections for President Donald Trump, whose Republican Party is seeking to maintain control of Congress.

The Fed's rate-setting committee will meet in mid-September, with markets expecting interest rates to be raised to combat sustained inflation. The Fed has missed its long-term 2% target for inflation for over five years, and US households have been battered by high prices.