Fed: Economic growth still 'modest'

NEW YORK (CNNMoney.com) -- Economic growth continued at a sluggish pace over the past few weeks, the Federal Reserve said Wednesday, supporting views that the Fed might take action to spur the economy at its next policy meeting.

In its latest snapshot of regional economic conditions, the Fed reported some bright spots in manufacturing, travel, tourism and auto sales, but still saw weakness in the housing market.

The report, known as the Beige Book, summarized economic conditions in the central bank's 12 districts across the nation. It will help set the tone for the Fed policy meeting set to take place Nov. 2-3. Investors are widely expecting an announcement of another round of asset purchases.

"The lack of meaningful improvements leaves investors anticipating additional action by the Federal Reserve to reinvigorate the economy in November," said Kathy Lien, director of currency research for GFT, in a research note.

"If the Fed was worried about the recovery in September, they will remain worried in November as there was no major pickup in economic activity," Lien said.

Recovery still sluggish: Consumer spending was either steady or slightly higher in the 12 regional districts, but the Fed noted that consumers remained price-sensitive, and purchases were mostly limited to necessities and non-discretionary items.

And inflation remained fairly low. While some producer costs moved higher, they were not passed on to the final products as consumer prices remained stable.

Each district reported gains in manufacturing, with the exception of Philadelphia and Richmond, and sales of new and used vehicles held steady or rose during the reporting period in most parts of the country.

But the outlook on housing remained weak. Overall home sales were sluggish or declining and were below year-earlier levels in most of the country, and single-family construction activity clocked in at very low levels.

The Fed's next move: For weeks, the prospect of another round of so-called quantitative easing -- a process in which the Fed purchases assets in an effort to pump money into the economy -- has sparked intense speculation in the market.

Last week, Chairman Ben Bernanke gave the clearest signal yet that the Fed will announce more quantitative easing, stating that "there would appear...to be a case for further action."

It's not a question of whether the Fed will institute quantitative easing, according to John Canally an economist for LPL Financial. Rather, the question is "How much? And when?"

The market has already priced in about $1 trillion in quantitative easing, and speculation as to the specifics of the Fed action will continue until November, Canally said.