updated 10/12/2006 5:43:31 PM ET 2006-10-12T21:43:31

The economy continued to grow in the early fall despite a “widespread cooling” in the once-hot housing market, the Federal Reserve reported Thursday.

Major Market Indices

The Fed’s latest survey of business conditions around the country found the economy expanding with growth being described as “moderate or mixed.”

However, the report found there was a distinct slowdown in housing with the majority of the Fed’s 12 regions reporting lower asking prices for homes, a softening in sales and rising inventories of unsold homes.

The Fed said that reports from around the country “indicated widespread cooling” in housing markets with financial institutions finding that mortgage lending activity had tapered off. That decline in lending was being offset to some extent by an increase in lending for commercial projects in several districts, the Fed said.

The latest snapshot of the economy, based on reports from the Fed’s regional banks, will be used when central bankers next meet on Oct. 24-25 to consider what to do with interest rates.

It is widely expected that the Fed will for a third straight meeting leave rates unchanged, preferring to wait and see if the economic slowdown brought on by previous rate hikes will be enough to keep inflation under control.

Minutes released on Wednesday of the Fed’s deliberations in September found that Fed officials remained concerned about inflation. Those worries were seen as a signal that the Fed will not soon start cutting interest rates, something that financial markets had grown hopeful might occur given the spreading economic slowdown.

Last week, Federal Reserve Chairman Ben Bernanke said that housing was going through a “substantial correction” that he estimated would trim economic growth by a full percentage point in the second half of the year.

The economy grew by just 2.6 percent in the second quarter, less than half the pace of the first three months of the year, as it was battered by soaring gasoline prices, rising interest rates and the cooling housing market.

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