Economy May Be Dodging a Rate Hike

The Federal Reserve Board reported fresh evidence that the nation’s economy may be slowing on its own--without an interest rate hike.

In one of its periodic surveys of regional economic activity, the Fed said, “The economy continued to expand in June and July, though in some areas the pace of growth moderated since the last report.”

The findings were consistent with other recent data showing the economy continues to grow, although not at the sizzling pace of last spring.

The Fed survey of its 12 districts, conducted before July 30, also found few signs of price pressures, saying the cost of raw materials and finished goods was “essentially flat.”

Until recently, many analysts and investors expressed concern that Fed policymakers would boost short-term interest rates soon, possibly at their Aug. 20 meeting, to keep the economy from overheating and inflation from boiling over.

But the latest data conform with an economy cooling itself without the help of higher interest rates.

And while some fear a tight job market could boost the cost of goods and services, the Fed survey found that so far “wage pressures remained subdued.”

The survey, known as the “beige book,” will be used by the Federal Open Market Committee at its Aug. 20 meeting to consider monetary policy. The panel is composed of the seven Fed governors and presidents of the 12 regional banks.

“Retail sales softened in most districts, though sales were generally up from a year ago,” the report said. Retail sales represent about a third of the nation’s economic activity.

In the West, the economy picked up in California and Washington but was tempered by moderation elsewhere, according to the Fed’s regional bank in San Francisco.

Manufacturing gained, with growth shifting toward California and Washington, where residential real estate markets improved.

The survey found increased demand for commercial and industrial loans in most districts but softer demand for consumer and mortgage loans. It also found brisk tourism activity, especially on the West and East coasts.

Another Fed report Wednesday said consumers increased their use of credit to finance many of their purchases. Consumer installment debt rose 8.7% at an annual rate in June, the largest increase since it jumped 10.4% in March. The $8.3-billion gain boosted total credit to $1.15 trillion.

Growth in auto loans shot up at a 17.6% annualized rate, more than four times the 3.9% gain in May. But revolving credit, which includes credit cards, increased just 7.6%, down from 15.6% a month earlier.

Consumer credit includes all household debt not secured by real estate. Many analysts believe the high level of debt is partially behind the slowdown in economic activity.

The beige book found manufacturing continued to expand and that housing markets remained “fairly strong” in most districts.