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Fri, Sep 07, 2007 - Page 10 News List

Credit squeeze has little US economic impact, report says

BEIGE BOOK A Federal Reserve report suggested there was no panic in the wake of financial market upheaval due to concerns about credit drying up

AFP , WASHINGTON

The US economy is feeling a "limited" impact from the squeeze in credit and weak housing, the Federal Reserve said in its Beige Book report on Wednesday.

The report, to be used by the central bank at its Sept. 18 monetary policy meeting, suggested the central bank may not be in a rush to aggressively cut interest rates despite skittish financial markets.

"Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited," the Beige Book said.

The report, seen as key to the outlook of Federal Open Market Committee (FOMC) policymakers, suggested no panic at the central bank in the wake of financial market upheaval in response to concerns about credit drying up.

rate cut

"The financial markets will not find much in these Beige Book comments to increase the argument for a rate cut at the upcoming Sept. 18 FOMC meeting," said Dick Green at Briefing.com.

"The Beige Book reflects a sluggish economy, but not one that is caving even though housing market conditions remain dire," he said.

According to the Beige Book, the regional Federal Reserve banks "reported that the recent developments in financial markets had led to tighter lending standards for residential mortgages, which was having a noticeable effect on housing activity."

It added that in some areas, "the reduction in credit availability added to uncertainty about when the housing market might turn around."

But it also noted that "credit availability and credit quality remained good for most consumer and business borrowers."

concerns

The Fed funds rate has been at 5.25 percent for over a year. The Fed on Aug. 17 cut its discount rate -- used for loans from the Fed itself to banks -- by half a percentage point to 5.75 percent in response to concerns about a retrenchment in credit.

The Beige Book said reports from the Federal Reserve Districts indicated that economic activity has continued to expand, with varied results by region.

Some areas had reported "moderate" or "modest" growth and a few regions saw slower growth.

Housing conditions appeared to worsen across the US.

"The weakness in the housing market deepened across most districts, with sales weak or declining and prices reported to be falling or flat," the report said.

The report said "nearly every district" reported at least modest increases in employment during the recent survey period, with wage increases "moderate or steady."

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