Fed reports economy remains frail

By Martin Crutsinger
Associated Press

WASHINGTON — The U.S. economy was coping with "slow and uneven" growth in the late summer as manufacturing companies and other businesses experienced a weakening in activity, the Federal Reserve said yesterday in a report that leaves the door open to further interest rate cuts if needed to bolster the economy.

The Fed, releasing the findings of surveys done by its 12 regional banks, found numerous examples of weakness, with job growth still sluggish and manufacturers, the sector hardest hit by last year's recession, still facing weak demand.

The report, known as the Beige Book for the color of its cover, will be used as the basis of discussion when Fed policy-makers meet Sept. 24 to discuss interest rates. Many economists believe the central bank could decide to cut rates at that meeting to try to ensure that the country doesn't dip back into a recession.

After cutting rates 11 times last year in an effort to deal with the country's first downturn in a decade and the shocks from the Sept. 11 terrorist attacks, the Fed has left rates unchanged throughout this year. The overnight borrowing rate for banks is at a 40-year low of 1.75 percent.

The Fed survey, which expressed the belief that the economy was recovering earlier in the year, has grown more pessimistic since June, reflecting the big hit to consumer and business confidence that has occurred as corporate accounting scandals sent stock prices plunging.

Giving the Fed room to cut interest rates further, the survey found few signs of rising inflation pressures outside of healthcare, where the price of health insurance has been rising sharply.

Tourism, including the airline industry, continued to report a fallout from last year's terrorist attacks and the recession.