Fed Report Seen as Pointing to Further Rate Reductions

The U.S. economy is still growing but at a slower pace, the Federal Reserve said Wednesday in a report that economists interpreted as an indication that the central bank had room to cut interest rates further.

In a survey of economic conditions around the country, the Fed found that the “nation’s economy continues to grow slowly,” with weak auto sales, generally sluggish consumer spending and some declines in manufacturing output.

The slowdown this year was caused in part by the Fed’s yearlong battle to drive interest rates higher as a way of dampening demand and easing inflationary pressures.

The Fed switched course in June, however, and began nudging interest rates lower in an effort to stave off a recession.

Many analysts interpreted the Fed’s new economic survey as an indication that the central bank, while not overly worried about an imminent economic downturn, was ready to lower rates further if the economy showed continued weakness.

“This report says that the Fed believes the economy is slowing down but there is no imminent danger of a recession and inflation doesn’t look like as big a problem as it did a few months ago,” said David Wyss, an economist with DRI-McGraw Hill.

Wyss said that while the Fed would ease interest rates further in coming months, “they are not in a big hurry to do it.”