In a report to investors released Tuesday, the Fed’s Federal Reserve Banks Council found that the housing market is the top area of concern for consumers and that spending on consumer goods has declined sharply in the past year.
It also warned that inflation is likely to continue to rise as consumers move into retirement.
Fed policymakers are forecasting a modest increase in the pace of U.S. economic growth next year, but the bank noted that even that number may be modest given the country’s tight monetary policy.
“The housing market, in particular, has been the most important driver of consumer spending over the past three years,” the report said.
“Although some of the gains have been in the housing sector, the impact of the strong performance in the broader economy has been especially pronounced.”
The report warned that even modest increases in consumer spending could have a large impact on consumer spending growth in the near term.
“Consumer spending will be slow in the short term,” the Federal Reserve said.
“It will be the case that the slow growth of consumer activity is reflected in slower household spending growth.”
The Fed’s report was released after a meeting of the Federal Open Market Committee on Tuesday.
The committee is tasked with keeping the U.K. economy moving in the direction of a strong recovery.
The Fed, however, has signaled that its monetary policy stance may be tightening again soon.
It is expected to make its next round of monetary policy announcements in March.