The Fed blamed the Asian economic crisis and said growth was further hampered by a tightening of credit standards, which made it more difficult for companies to borrow money.

However, overall the economy is still strong, and the level of unemployement remains low.

The tight labour market and the recent weakness of the dollar could in theory drive up earnings and thus inflation, but the Federal Reserve said that price pressure was subdued.

Retail sales slowed down in most of the US, while the manufacturing sector is clearly losing steam - even though the Fed still saw activity to be "relatively high."

The construction industry continues to show robust health.

The findings were published in the bank's "beige book", which appears eight times a year and covers the whole of the US economy.

It is one of the bank's most important surveys and forms the basis for its decisions on the level of interest rates.

The Fed's board will meet again on 17 November and many analysts expect yet another rate cut designed to insulate the US economy from Asia's economic troubles.

In mid-October the bank had surprised the markets by cutting interest rates to 5% between scheduled Federal Reserve board meetings.