Fed Survey Shows Steady Economic Growth

Less than two weeks before a key policy meeting, a Federal Reserve Board survey showed little evidence of wage and price pressures that would justify an immediate interest rate increase.

Regional “economies continue to expand at a relatively moderate pace,” the central bank said Wednesday in its closely watched survey of economic conditions gathered from its 12 district banks.

“Tight labor markets still dominate in almost all parts of the country. Nevertheless, wage gains generally remain moderate,” the report said. “Price pressures, such as those reported by most retail and manufacturing contacts, appear to have been temperate.”

Economists said the survey, known as the “beige book,” supports the case that the Fed will maintain its wait-and-see attitude about engineering an interest rate increase aimed at dampening economic activity and preventing an inflation outbreak. The survey covered the period from mid-January through March 3.

In its last regional outlook, Jan. 22, the Fed reported “scattered evidence” of higher wages against a backdrop of subdued economic growth and holiday sales in line with retailers’ expectations.

In the markets, the price of government bonds recouped earlier losses immediately after the report before retreating again, and the Dow Jones industrial average fell 46 points.

After a round of congressional appearances last month by Fed Chairman Alan Greenspan, most economists believe the central bank eventually will nudge short-term interest rates higher.

Their only question has been whether the Fed will move at its next meeting, on March 25, or wait until the subsequent policymaking gathering on May 20 or later.

The Fed hasn’t raised its benchmark rate on overnight loans in two years. It cut the rate to 5.25% on Jan. 31, 1996, and it has stayed there since.

Greenspan has indicated the Fed is watching labor markets for signs of accelerating wage gains that could ripple into price increases for consumer goods and services.

But the survey said “wage gains show no sign of breaking out of the 3% to 4% range.”

The San Francisco district, which covers California and other Western states, reported wage increases in the high-technology industries and aircraft manufacturing.

Meanwhile, the survey cited improved retail sales from a year ago in most districts, including San Francisco, and “high levels of manufacturing activity, with only pockets of weakness.”