WASHINGTON -- The Bush administration on Friday renewed its pressure on the Federal Reserve to boost growth in the money supply and consider another cut in interest rates after the Labor Department reported that the U.S. economy continued to grind along in low gear during August.

In a meeting with White House reporters, Michael Boskin, chairman of the President's Council of Economic Advisers, said, "We certainly expect the Fed will be doing everything it can to make sure money supply gets back up" to the middle of the Fed's target range.

Asked whether the slow growth in the money supply means the Fed should alter course and cut rates again, Mr. Boskin replied, "it may." That depends, he explained, on how much stimulus the economy gets from past rate reductions and on how willing banks are to lend. Analysts believe that if the Fed cuts short-term rates another notch, banks will lower the prime lending rate from the current 8.5% to 8.0%.

The M2 measure of the money supply, which includes small-denomination time deposits at banks as well as checkable deposits and currency, has been scraping along at an annual growth rate of about 2.5% -- the bottom of the Fed's range of 2.5% to 6.5%.

Even though Mr. Boskin expressed displeasure over the money supply, he repeated the administration's forecast that the economy will grow in the range of 2.5% to 3.0% during the second half of the year. "We look forward to an economy that continues to improve," said Mr. Boskin.

Despite the administration's appeal for help, Fed officials apparently are keeping monetary policy unchanged, at least for now. The trading desk of the Federal Reserve Bank of New York failed to enter the money markets on Friday, leaving the federal funds rate at about 5.5%, the same as the discount rate.

The Labor Department's household survey showed that the unemployment rate last month stayed unchanged at 6.8% as a decline in the number of people employed was offset by a nearly equal drop in the size of the labor force. In July, the jobless rate hit a peak high of 7.0%.

A separate business survey conducted by the department showed the number of nonfarm payroll jobs rose 34,000 in August, a small increase but one that broke two consecutive monthly declines. Economists said they were especially impressed by gains in the manufacturing sector, where jobs increased by 42,000 in both durable and non-durable goods. Job growth in the service-producing sector remained generally flat, Labor officials said.

Private economists said the Labor Department report painted a mixed pricture of the economy that left unclear whether Fed policy-makers will agree to lower rates again. "This report leaves the Fed on the fence," said Marco Jones, first vice president for Deutsche Bank Capital. "It did not provide clear evidence of further deterioration in the economy."

"The bias is still toward easing, but it's not very strong after this report," said David Wyss, senior vice president for DRI/McGraw-Hill Inc. in Lexington, Mass.

According to the Labor report, employment in business services and health advanced 57,000. But wholesale trade lost 18,000 jobs, bringing total losses to 165,000 since April. Government jobs, reflecting the cutbacks by state and local governments, fell 31,000 to bring total losses since May to 100,000.

Analysts said the rise in manufacturing employment, coupled with an increase in the average workweek for nonfarm workers and a 0.7% rise in weekly hours, should result in increases in personal income and industrial production.

Senior Fed officials, in comments last week, apparently stuck to their view that the recovery is unfolding without too much difficulty. Analysts noted optimistic remarks by Federal Reserve Board Governor John Laware and by Robert Parry, president of the Federal Reserve Bank of San Francisco.

Still, the bond market -- which rallied on Friday -- is apparently continuing to bet on another move by the Fed to lower rates. The market is priced for another Fed easing, said Mr. Jones, noting that two-year Treasury notes are yielding about 6.25%, only 75 basis points above the federal funds rate. Normally, the spread is around 100 basis points when the market expects Fed policy to stay neutral.

"A lot of people are questioning whether the recovery is sustainable," said Evelina Tainer, a professor of finance at St. Xavier College in Chicago. "I think we're in a recovery, but the strength of the recovery is diminishing. I think the Fed is going to have to ease."

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