Economy called 'generally weak'
But Fed says US ducks contraction in April and May
WASHINGTON - The Federal Reserve said economic growth was "generally weak" in April and May as consumer spending slowed, while manufacturers in "several" regions passed on higher raw materials costs to their customers.
Seven of 12 regional Fed banks reported a softer, slower, or "modest" expansion. Five districts reported that business was "stable or little changed," the central bank said in its regional economic survey, up from three in April and four in March.
The report indicates the economy is slowing, though avoiding a contraction, an assessment that echoes chairman Ben S. Bernanke, who said this week dangers of a deeper downturn are receding. The release didn't sway investors from betting that the Fed will raise interest rates by year-end to stem inflation.
"Reports from Federal Reserve districts suggest that economic activity remained generally weak in late April and May" the central bank said in the business survey, known as the beige book for the color of its cover. "Three districts described economic activity as softer, weaker, or lower, with an additional four districts reporting slower, sluggish, or modest economic growth."
"There is not quite the degree of softness that we saw in the previous beige book," said David M. Jones, the president of DMJ Advisors LLC in Denver and author of four books on the central bank. That "allows the Fed to pay greater attention to these inflation expectations" among consumers.
The anecdotal reports are part of a package of analysis and data that will be used by Fed policy makers as they decide on interest rates at their June 23-25 meeting. Yesterday's release describes tepid growth with increasing anecdotal evidence of rising costs for businesses and consumers from higher energy prices.
Fed officials cut the benchmark interest rate 2.25 percentage points in the first four months of this year, to 2 percent, the fastest reduction in two decades. Futures traders project no change at this month's meeting.
"The Fed has to be worried about the suction of purchasing power out of the wallets of Americans caused by the seemingly unending rise" in oil prices, said Alan Blinder, a Princeton University professor and former Fed board vice chairman. "That's more and more purchasing power that could and should be spent on other things."
The consumer price index rose 3.9 percent for the 12 months ended in April.
Growth expanded at a 0.9 percent annual pace in the first quarter, the Commerce Department said May 29.
