Washington, DC, Apr. 21--The U.S. economy showed "widespread" growth from mid-February through early April with only modest inflation, the Federal Reserve said in its latest survey of regional economic conditions.
"Economic activity increased across the nation," said the survey, known as the beige book for the color of its cover. "Labor markets tightened somewhat with modest wage increases."
The report supports Federal Reserve chairman Alan Greenspan's view that the economy is in a "vigorous expansion" that hasn't produced "broad-based" inflation pressures, as he told the Joint Economic Committee of Congress yesterday. He discussed the likely need to eventually raise interest rates, without offering a timetable.
The Federal Reserve will have to raise interest rates "significantly at some point" to prevent growth from triggering inflation, said Robert Parry, president of the Federal Reserve Bank of San Francisco. "As long as the inflation rate has been low, upside surprises haven't been as much of a concern," Parry said in the text of a speech at Gettysburg College in Gettysburg, PA.
The "major issue" facing Fed policy makers is deciding when to start tightening monetary policy, said Parry. Parry is a nonvoting member of the FOMC this year and won't attend the May meeting.
The Federal Open Market Committee will use the beige book survey May 4 as part of its deliberations on interest rate policy. All 74 economists surveyed by Bloomberg News expect the FOMC to leave the benchmark overnight bank lending rate at the almost 46-year low of one percent, where it has held since June. Traders in interest rate futures contracts expect the benchmark rate to rise by a quarter percentage point in August.
"The economy has gotten on a solid footing for growth, and the labor market had a great month in March," said Martin Baily, who was chairman of the Council of Economic Advisers under President Clinton, in an interview.
The survey released yesterday said "many districts reported modest increases in overall consumer prices, but most districts indicated significant increases in numerous commodities and input products."
The Boston region's economy "is gaining momentum," the survey said. Manufacturers and retailers in that Fed district said orders are higher than a year earlier. Businesses reported increased prices for energy, other petroleum-related products, metals, and wood, "which some say they are able to pass on to consumers."
The beige book report was written by the Minneapolis Fed based on information collected before April 12. The anecdotes reported by the regional Fed banks from local businesses are meant to supplement the theoretical models and projections produced by the staff at the Washington-based board of governors.
A "noticeable" increase in retail sales was seen in most of the Fed's 12 districts and "retail contacts were optimistic for growth during last spring and summer," the survey said. Discount pricing at retail stores was "beginning to level off."
