While reporting only marginal changes in the strength of the economy Wednesday, Federal Reserve officials said there has been a "sharp deterioration" in expectations for the fourth quarter and beyond.
"The number of sources expressing concern about the near future is striking," the Federal Reserve Bank of Minneapolis said.
Roughly every six weeks the Fed compiles economic observations from its 12 district banks into the Beige Book. The Federal Open Market Committee uses the report to help set monetary policy. This Beige Book was much anticipated as many market watchers expect the committee will lower interest rates at its Sept. 29 meeting.
According to the report, the economy continued to expand at a moderate pace in August and early September. Labor markets were tight, pushing up wages at a faster pace. But retail prices remained steady, and falling import prices pushed industrial commodity prices down.
"Despite some continuing-and in some cases increasing-softness incertain industries due to the weakened Asian economies, many districts indicate unusually high levels of construction and good retail sales growth," the report states. Loan demand and credit quality varied by region.
Lending remained "brisk" in the Richmond, Dallas, and San Francisco regions, while New York and Philadelphia reported volumes have been declining. In Cleveland commercial loan demand was strong while consumer demand was flat. In Kansas City the only loan categories to increase were consumer, mortgage, and agricultural.
The Richmond, Minneapolis, and San Francisco Fed districts noted deteriorating credit standards, while the Dallas Fed said a few banks have tightened standards recently. Delinquency rates were unchanged in Cleveland and stable to lower in New York.
Bank economists who read the report said they do not expect the Open Market Committee to lower rates.
"While concerns about the future are building, we're not seeing a slowdown in the economy," said Joel L. Naroff, chief bank economist for First Union Corp. "There's nothing in here that says you've got to ease."
James Chessen, chief economist at the American Bankers Association, agreed.
"I think they ought to cut rates, but I don't think they are going to," he said.
After its September gathering, the Open Market Committee's next scheduled meeting is Nov. 17.