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The Fed Cuts the Economic Growth Forecast for Late 2015 to 1.6 percent

The Fed Cuts the Economic Growth Forecast for Late 2015 to 1.6 percent

Holiday spending expected to slump amid inflation, economic uncertainty, report says

WASHINGTON (Reuters) – U.S. consumer spending will probably slump this holiday season, meaning the retail and travel spending that drives the nation’s economy will likely contract, a survey of economists showed on Friday.

Retail inflation of 0.5 percent to 1.5 percent, the latest in a long series of surveys showing that retail and travel spending will likely be weak compared with last year’s, will make consumers reluctant to spend heavily, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

While he expects total spending, such as purchases by big-box retailers and travel, to rise 5 percent to 6 percent, the increase won’t be enough to offset weak growth in consumer spending in the past two years, Shepherdson said.

“We have one heck of a spending problem over the next 12 months,” Shepherdson said.

That’s mainly because of weak economic growth and rising prices, Shepherdson said. The U.S. economy is expected to contract this year and the central bank has cut rates to zero percent several times in 2015 to stem the decline in economic activity, the latest in September.

The Federal Reserve trimmed the economic growth forecast for late 2015 to 1.6 percent from 1.8 percent in November and 1.7 percent last month.

“I expect the spending problem to be driven by an increasingly tough labor market,” Shepherdson said.

The median projection was for a 1.3 percent increase in consumer spending by the end of the year, versus November’s 1.8 percent rise and December’s 1.9 percent increase.

The survey of economists was conducted by Pantheon Macroeconomics ahead of the fourth quarter of 2013 and the third quarter of this year. An alternative forecast, based on prior forecasts, is due in late December.

The median forecast of economists was for a 1.3 percent rise in consumer spending through the year.

Retail spending,

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