US economy had solid momentum before government shutdown, Fed says

Federal Reserve chairman Ben Bernanke leaves after a bilateral meeting with the financial delegation from India at the IMF on Sunday. Photograph: Alex Brandon/AP

The US economy was sailing smoothly, if not swiftly, before parts of the government shut down this month, according to a snapshot from the Federal Reserve that provided the fullest view of the recovery since federal data dried up.

The picture painted by the Fed's Beige Book report, released on Wednesday, showed that underlying momentum remained solid, although confidence had been tempered somewhat by uncertainty caused by budget battles in Washington.

"Reports from the twelve Federal Reserve districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October," the Fed said.

Financial markets have been flying almost blind since data publication was halted on 1 October, leaving investors to rely largely on private sector surveys to gauge the impact of the government shutdown and bitter debate between lawmakers on raising the US debt limit.

The report was put together by the Chicago Fed, based on information collected on or before 7 October.

"Contacts across districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate," the Fed noted.

Economists had trimmed estimates for US growth as the budget impasse lengthened, dragging the country to the brink of default as lawmakers failed to agree a deal to raise its debt limit ahead of an 17 October deadline, when the US Treasury said it would have exhausted its borrowing authority.

The US Senate announced a last minute deal on Wednesday to avert default and end the two-week shutdown.