Fed sees US economy struggling

Greenspan: pressure is on for more rate cuts

Few areas of the US economy escaped the fallout from the 11 September terrorist attacks, according to the Federal Reserve's latest survey of economic conditions.

The Fed found that the already ailing US economy was brought to a virtual standstill by events in New York and Washington.

Air travel was temporarily suspended and most Americans stayed at home to watch television news reports.

This was followed by widespread lay-offs, cancelled manufacturing orders and a fall in retail sales.

Interest rates

The weakness continued into October, with some areas of the economy recovering quicker than others, the Fed found.

The report, compiled from information gathered by the central bank's 12 regional banks, will be used by the Fed when it meets on 6 November to decide its next move on interest rates.

The findings, compiled in the so-called Beige Book, which takes its name from the colour of its cover, are likely to add to pressure for a 10th successive rate cut.

"The softness in consumer spending, manufacturing and construction activity is affecting the labour market, where layoffs and plant closings have been reported in many industries from financial services on the East Coast to media and advertising on the West Coast to auto parts in the central states," the Fed report said.

Little inflation pressure

But, it added, "business activity recovered quickly from some aspects of the shock, such as reduced air cargo capacity, but longer-term affects are more difficult to assess".

The survey found little pressure on inflation.

"There has been little upward pressure on either wages or prices and, in some cases, they have actually fallen."

US stock markets gave little reaction to the Fed's assessment, which contained few surprises.

The Dow Jones Industrial Average closed up 5.05 at 9345.13, while the Nasdaq composite index ended up 26.77 at 1731.21.