WASHINGTON (Reuters) - The economy grew sluggishly in recent weeks, with businesses struggling to raise prices and reluctant to hire and invest, the Federal Reserve said on Wednesday.
The U.S. central bank’s Beige Book provided the latest evidence the economy is stuck in a recovery too weak to generate new jobs, and reinforced the view in financial markets that the Fed will soon ease monetary policy further.
“National economic activity continued to rise, albeit at a modest pace,” the Fed said in the report, which was prepared its next policy-setting session on November 2-3.
A separate report showing mortgage applications slumped last week highlighted lingering weakness in housing markets.
The Fed’s report, which showed consumers were focused on buying only necessary items, had little impact on financial markets on Wednesday.
The central bank’s march toward more stimulus for the economy has driven the U.S. dollar down in the past month and caused consternation among emerging markets whose currencies have been pushed up by investors seeking higher yields in other countries.
Global currency tensions are expected to get a thorough airing at meetings of the Group of 20 nations in Korea later this week. Many emerging market countries have taken steps to restrain their currencies from rising out of fear their exports would get choked off.
The Fed has already cut rates to near zero and bought $1.7 trillion in government and mortgage-related debt to support the economy, which exited a painful recession in June of last year.
The dollar slumped anew on Wednesday on a report from an influential consulting group saying the Fed plans to purchase $500 billion in U.S. Treasury securities over six months as part of its next round of help for the faltering recover.
Although comments from a number of Fed policymakers in recent days point to a growing consensus in favor of another round of monetary easing, one official signaled on Wednesday he does not think conditions warrant Fed action.
Philadelphia Federal Reserve Bank President Charles Plosser said he does not currently see “a great fear” of deflation although he added that he could change his mind based on incoming data.
“I don’t see the pay-offs for unemployment as very great and I don’t see the necessity of it at this point given my forecast on inflation,” Plosser told reporters after giving a speech to the Union League of Philadelphia.
The Beige Book found that manufacturing had strengthened in most of the Fed’s 12 districts, buoyed by exports in many places.
Consumer spending held steady or gained slightly, but shoppers focused on necessities. Housing markets remained weak, and although home prices appeared to be stabilizing, inventories were elevated and rising in areas, the Fed said.
Higher costs of agricultural commodities and metals were not passed on to consumers, it added, suggesting a squeeze on corporate profits.
“Pass-through of rising input costs to final prices remained limited, although there were scattered reports of increases,” the Fed said.
The report also found that wage pressures were minimal, and that the job market and business investment remained weak.
“Businesses continued to postpone capital spending plans because of economic and public policy uncertainties,” the Fed said. “Hiring remained limited, with many firms reluctant to add to permanent payrolls given economic softness.”
With the U.S. unemployment rate at 9.6 percent and unlikely to move much lower soon, some Fed officials are worried the economy risks falling into a deflation, a broad-based decline in prices that could further undercut economic activity.
The Beige Book was based on data collected from late September through October 8 by the Dallas Federal Reserve Bank.
A separate report from the U.S. Mortgage Bankers Association found falling demand for home loan financing for the sixth time in seven weeks last week, pointing to lingering softness in housing markets.
Mortgage interest rates rose, but were not far from record lows, and analysts said dwindling uptake of low borrowing costs is evidence of high unemployment and low credit scores.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.34 percent, up 0.13 percentage point from the previous week. Interest rates were also below their year-ago level of 5.07 percent
Reporting by Mark Felsenthal; Editing by Neil Stempleman