Fed Sees More Sluggish Growth, Rising Inflation - Economy * US * News * Story

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Fed Sees More Sluggish Growth, Rising Inflation

By: Reuters | 23 Jul 2008 | 02:03 PM ET

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The pace of U.S. economic activity slowed somewhat through mid-July and price pressures were elevated or increasing across the country, the Federal Reserve said, in a report showing evidence of inflation warning signs across the country.
AP

"All reporting districts characterized overall price pressures as elevated or increasing," the Fed said in its Beige Book report on the state of the economy through July 14.

Input prices rose, particularly for fuel, petroleum-based materials, metals, food and chemicals, the U.S. central bank said.

The report underscored the challenges confronting Federal Reserve Chairman Ben Bernanke and his colleagues as they try to get the economy back on track.

For now, many economists predict the Fed will probably leave a key interest rate alone when it meets next on Aug. 5 given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market.

On the other hand, the Fed isn't inclined to lower rates because that would aggravate inflation.

Growth and inflation barometers turned worse in the summer, according to the Fed report.

Some worry that the country may be headed for a bout of stagflation, that toxic combination of stagnant growth and stubborn inflation last seen in the 1970s. Bernanke has said, however, that he doesn't believe the economy will suffer from stagflation.

Information from the Fed's 12 regional banks around the country suggested that "the pace of economic activity slowed somewhat since the last report" issued in June, the Fed report said.

Consumer spending—the economy's lifeblood—was reported as "sluggish or slowing" in nearly all the 12 Fed regions, although the government's tax rebate checks spurred sales for some items, especially electronics.

Sales at many other stores, particularly for housing-related goods, were typically characterized as "weak or falling," however.