“The pace of economic recovery appears to have slowed during the first half of this year, with real gross domestic product (GDP) likely having risen at only a modest pace. In the labor market, the rate of job gains has diminished recently, and, following a period of improvement, the unemployment rate has been little changed at an elevated level since January. Meanwhile, consumer price inflation over the first five months of 2012 was lower, on net, than in 2011, and longer-term inflation expectations have remained stable. A number of factors will likely restrain economic growth in the period ahead, including weak economic growth abroad and a fiscal environment that looks set to become less accommodative. Uncertainty about these factors may also restrain household and business spending. In addition, credit conditions are likely to improve only gradually, as are still-elevated inventories of vacant and foreclosed homes. Moreover, the possibility of a further material deterioration of conditions in Europe, or of a particularly severe change in U.S. fiscal conditions, poses significant downside risks to the outlook.”
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