A Federal Reserve survey of regional economic conditions found enough signs of inflation pressure to justify an interest-rate increase when monetary policymakers meet May 20, economists said.
The survey, known as the beige book because of the color of its cover, said regional economies "continued to expand at a moderate rate."It noted soft signs such as a tapering off in sales of cars and light trucks and "relatively flat" retail prices across the country.
On the other hand, the survey noted "labor markets remained tight . . . with a few new reports of upward wage pressures." It also said "manufacturers were operating at very high levels with new orders increasing significantly" and found "a pickup in business lending activity, with . . . fierce competition and credit standards being lowered."
"Those are the kinds of terms that will trigger a modest tightening move," said economist David Jones of Aubrey G. Lanston & Co. in New York.
The only question is whether the increase comes at the May 20 meeting of the policymaking Federal Open Market Committee or the subsequent meeting on July 1-2, he said.
At its last meeting, on March 25, the committee raised the benchmark federal funds rate, charged among banks on overnight loans, by a quarter percentage point, the first increase in two years.
"The economics could justify another move, but it doesn't have to be done in May," said economist Robert Dederick of Northern Trust Co. in Chicago. "The economics say move in May but the politics say take a more sedate approach. I don't know which is going to win."
The beige book, compiled by the Fed's 12 regional banks from information collected before April 28, was released Wednesday.
Separately, the Fed said consumer borrowing slowed in March. It increased at a seasonally adjusted annual rate of 2 percent in March, the slowest since September.