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Wednesday, 8 March, 2000, 19:44 GMT
US economy still booming
The Fed is mulling  further rate rises
The Fed is mulling further rate rises
The U.S. economy grew strongly at the start of 2000 and the labour market was getting increasingly tight, the Federal Reserve said in its regular survey of regional economic conditions released on Wednesday.

Mirroring warnings by top Fed officials that the world's biggest economy is in danger of overheating unless growth slows down soon, the central bank said that widespread labour shortages had caused increased wage pressures.

Alan Greenspan: inflation hawk
Alan Greenspan: inflation hawk
But the Fed's "Beige Book" survey, based on comments from businesses and other sources in the Federal Reserve System's 12 districts, nonetheless found that inflation remained in check.

Longest expansion in history

The U.S. economy's current expansion became the longest in U.S. history at 107 months in February and this month is celebrating its ninth birthday.

In the last quarter of 1999, the economy grew at an annual rate of nearly 7%.

The latest survey shows little evidence that the growth rate is slowing down.

"Reports ... indicated appreciable expansion of economic activity during late January and February," said the survey, which appears eight times a year and is used by the Federal Reserve in setting interest rate policy.

While most districts reported "upward wage pressures for various types of labour, both skilled and entry level, ... increases in the prices of final goods and services were limited overall," the report noted.

On the retail front, the Fed found sales were strong in most areas and either met or exceeded merchants' expectations.

Sales of consumer electronics, appliances and home furnishings posted the biggest gains, the survey said.

But US inflation is still moderate despite the strong economy.

One reason is the extraordinary growth of productivity, which increased at an annual rate of 6.4% in the last quarter of 1999.

Higher productivity, or output per worker, allows firms to pay higher wages without hurting profits.

Nevertheless, the central bank is increasingly worried that the shortage of workers will lead to wage increases which will ultimately fuel inflation.

Higher interest rates?

The Fed next meets to set interest rates on March 21. After repeated warnings from Fed Chairman Alan Greenspan, there is a widespread belief that the central bank will raise interest rates again to cool the booming economy.

In his latest speech to bankers on Wednesday, Mr Greenspan warned them maintain their lending standards in the face of the remarkably strong economy.

Even though he did not discuss interest rates or monetary policy, Mr Greenspan's remarks contributed to Wall Street investors' nervousness because they echoed their fears that interest rates would have to rise sharply.

The latest Beige Book economic survey will do little to dispel that belief.
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See also:

03 Mar 00 | Business
US jobs growth slows
06 Mar 00 | Business
The Greenspan effect
01 Mar 00 | Business
US economy breaks record
18 Feb 00 | Business
US trade gap jumps 65%
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