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Economy slowing, Fed says
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June 14, 2000: 3:21 p.m. ET
Beige Book indicates slower growth, though inflation pressures persist
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NEW YORK (CNNfn) - The U.S. economy appears to be slowing from its robust pace, though economic activity remains exceptionally strong and inflation pressures a concern, particularly the effects higher prices for oil are having on overall activity, the Federal Reserve said Wednesday.
In its periodic summary of economic conditions, the Fed said overall growth had tapered off since its last report, compiled in mid-April. While the job market remained exceptionally strong, there was no evidence that the continuing lack of skilled workers appeared to be worsening, the report said.
At the same time, the Fed said indications of inflation pressures "while not widespread, are reported by several Districts," mostly due to rising prices for oil. After slipping to $25 a barrel in early April, oil has shot back up above $32 a barrel, fueling hefty price increases for gasoline at the pumps.
"Solid economic growth continued in April and May, but signs of some slowing from the rapid pace earlier in the year are also present," the report said. In addition, while some companies reported higher wage costs to recruit workers, and some industries reported severe shortages of labor, "the base wages of permanent employees are not said to be accelerating."
A change of tone
"There is a clear change in the tone of the Beige Book, but not all the news is good," said Ian Shepherdson, chief U.S. economist with High Frequency Economics. While it is a positive that growth is being noted in many areas of the economy, the risks of accelerating inflation are a concern, he said.
 The Beige Book findings will be used by members of the Fed's policy making arm, the Federal Open Market Committee, to discuss monetary policy and the direction of interest rates at their June 27-28 meeting. Many Wall Street analysts expect the Fed to keep rates steady for now as it assesses the impact of its six interest-rate increases over the past year.
The report said that U.S. labor markets remained tight, meaning few people were available to hire, but that the tightness had not grown any worse since its last report was issued May 3. It also said that manufacturing activity was rising in most parts of the country, countering recent private industry reports that manufacturing output is tapering off.
As for consumer spending, the survey noted that retail sales were higher than a year ago, though "half the Districts reported a recent slowdown in the rate of growth." The Commerce Department Tuesday reported that retail sales declined 0.3 percent in May. Consumer spending accounts for more than two thirds of overall economic output.
Tame inflation -- so far
The report came in the wake of numbers from the Labor Department showing inflation remained subdued last month -- more evidence for analysts and investors that the U.S. economy, now in a record 110th month of uninterrupted expansion, is beginning to slow to a more sustainable pace.
 Fed policy makers in May opted to lift the benchmark interest rate they control by a half a percentage point, the first half-point rate increase in more than five years. The move brought the fed funds rate -- the target rate commercial banks charge other to borrow money overnight -- to 6.5 percent and immediately boosted the cost of borrowing for consumers and businesses.
Recent evidence that the Fed's six rate increases in the past year are beginning to slowing the economy -- faltering job growth, slower manufacturing output, stagnating wages, subdued spending, and slowing home sales, to name a few -- have dramatically reduced expectations among analysts and investors for another rate hike later this month.
The Fed's Beige Book is a survey of the economy conducted eight times a year and released two weeks before each of its monetary policy meetings. The report generally is used as a reference for officials in their deliberations about monetary policy and interest rates. Today's report was prepared by the Boston Fed and is based on information collected before June 6. 
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U.S. Federal Reserve
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