WASHINGTON -- The nation's economy continued its expansion in May and early June, but some regions experienced a slowdown, the Federal Reserve reported Wednesday.

"In some areas growth has moderated recently," the central bank concluded in the Beige Book, its periodic survey of regional economic conditions.

The report attributed the slowdown, in part, to recent increases in market interest rates.

Under the leadership of Chairman Alan Greenspan, "The Fed is getting exactly what they had been planning to get," said Sung Won Sohn, senior vice president and chief economist at Minneapolis-based Norwest Corp. "They had been trying to get moderate economic growth with low inflation, so Dr. Greenspan's prescription is working."

The Fed also reported that loan demand picked up in most parts of the country.

"Loan demand is generally increasing, although rising interest rates have precipitated declines in some areas," the report said.

Demand for business loans increased in nearly half the Fed's 12 districts. Home sales and residential construction continued to be strong in most areas.

'Really Changed the Tune'

Mr. Sohn and other economists said the report's findings suggested the Fed would not raise interest rates at the next Federal Open Market Committee meeting, set for July 5-6.

"This morning's Beige Book report really changed the tune," he said. "This increases the probability that the Fed will maintain a steady course."

But Wayne D. Angell, the former Fed governor who is now chief economist at Bear, Stearns & Co., said the Fed will likely raise rates next month.

"There is nothing in the Beige Book that causes me to believe that this accelerating economy has been replaced by one that is going into the doldrums," he said. When the Fed meets next month, "The forward-looking indicators will tell the members of the committee that monetary accommodation is still there.

"You can't have it both ways: If the Fed is accommodative, you can't say the interest rate [increases] are slowing the economy," Mr. Angell said.

"What we have here is a monetary policy-induced expansion."

Whatever the Beige Book portends for next month, it was well-received Wednesday, a day after the dollar plunged to a post-World War II low against the yen, renewing pressure on the Fed to raise interest rates.

The Fed's 12 district banks prepare the Beige Book every six weeks in anticipation of the Federal Open Market Committee meetings, at which interest rate policy is set.

David A. Lereah, chief economist of the Mortgage Bankers Association of America, said, "The Beige Book information suggests that we did have a slight pause or slowing of growth in the second quarter, and from all indications, the economy continues to be strong."

"That bodes well for third quarter economic growth, but does not bode well for interest rates" in the long run, Mr. Lereah said.

"There is sort of a yellow flag," Mr. Lereah said. "Inflation doesn't appear to be a problem, but there are some warning signals in the Beige Book. At least in some districts, the labor market appears to be tightening. The pressure on wages is still pretty modest."

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