TRUST IS CRUCIAL, FED BANKER SAYS

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, February 19, 1993                   TAG: 9302190156
SECTION: BUSINESS                    PAGE: A-5   EDITION: METRO 
SOURCE: MICHAEL STOWE STAFF WRITER
DATELINE:                                 LENGTH: Medium
TRUST IS CRUCIAL, FED BANKER SAYS
Increased consumer confidence will propel the country toward economic recovery this year, the president of the Federal Reserve Bank of Richmond said Thursday.
President Clinton's economic plan is "reasonable and very comprehensive," said J. Alfred Broaddus. But the public must have confidence in the plan for it to be successful, he said in a pair of speeches Thursday in Western Virginia.
"The most important part is the credibility of the program," Broaddus said. "If the people see a program that makes sense and that they can believe in, then they will react."
Broaddus spoke in the morning to about 200 students and instructors at Radford University and at noon at the Roanoke Valley Graduate Center in Roanoke.
Because he didn't know all the details, Broaddus spoke briefly about Clinton's plan.
He said the economy already is showing recovery signs without a stimulus package, and that the country needs to focus the most attention on reducing the national budget deficit.
The best way to do that is to put restrictions on the growth of major entitlement programs such as Medicare and Medicaid, he said.
"This is a serious problem and we need to deal with it," he said.
Some social programs created in the 1950s have grown completely out of control, he said. "We've got to find a way to confront the situation, look at the tradeoff involved and make some decisions."
Though economists said the recession ended in April 1991, Broaddus said that until six months ago the public had noticed few recovery signs.
"For most people it really hasn't looked like a recovery, it hasn't felt like a recovery and it hasn't smelled like a recovery," he said.
But since summer there have been definite signs of improvement, Broaddus said. Single-family housing starts continue to increase, consumer confidence has shot up and the gross domestic product has risen about 3.5 percent.
"All the information does suggest that the economy has acquired a bit of steam," he said.
Broaddus said the recovery should continue, with low interest rates encouraging new home owners and an increase in commercial construction.
Unlike many economists, Broaddus said he doesn't expect any inflation increases this year.
"The forecasters might underestimate the Federal Reserve's efforts to keep inflation down," he said.
As president of the Richmond Federal Reserve 5th District, which covers Virginia, Maryland, North Carolina, South Carolina, most of West Virginia and Washington, D.C., Broaddus said his primary goal is to reduce inflation from its rate of 3 percent.
"Inflation is the mother of all risk and confusion," he said.
Though some critics say the low inflation rate actually slows For most people it really hasn't looked like a recovery, it hasn't felt like a recovery and it hasn't smelled like a recovery. J. Alfred Broaddus President, Federal Reserve Bank of Richmond growth, history has proven those claims inaccurate, Broaddus said.
Most economists say the Gross Domestic Product will rise 3 percent this year and the national unemployment rate will drop from 7.1 percent to about 6.5 percent.
"I think the long-term outlook for the country is quite bright. We have suffered a lot in the last four or five years, but there has been some good to come out of it," Broaddus said. "We are lean and mean and can go out in the world and compete much more effectively."

by Archana Subramaniam by CNB