THE VIRGINIAN-PILOT 
              Copyright (c) 1995, Landmark Communications, Inc.

DATE: Thursday, March 16, 1995               TAG: 9503160380
SECTION: BUSINESS                 PAGE: D1   EDITION: FINAL 
SOURCE: BY TOM SHEAN, STAFF WRITER 
DATELINE: NORFOLK                            LENGTH: Medium:   68 lines

FED ``HAWK'' STILL WAY OF INFLATION RESEARCH ECONOMIST SAYS THAT PRESSURE HAS BEEN BUILDING IN COMMODITIES.

Despite additional evidence that the pace of economic expansion is slowing, the Federal Reserve must stave off inflationary expectations among investors and consumers, the president of the Richmond Federal Reserve Bank said Wednesday.

Signs of slower growth in retail sales emerged earlier this week, but job growth has remained surprisingly strong, said J. Alfred Broaddus Jr., a research economist who rose to president of the Federal Reserve's Richmond bank two years ago.

In addition, inflationary pressures have been building in commodities and certain goods still in the manufacturing pipeline, Broaddus told a Hampton Roads Chamber of Commerce luncheon. ``We are at or near full capacity in a number of key industries,'' he added.

In an attempt to slow economic growth and prolong the current expansion, the Federal Reserve has doubled the level of short-term interest rates since early 1994. As a result, residential construction, home sales and auto sales have suffered from higher borrowing costs.

But other sectors of the economy, including production of computers and automation equipment, have been thriving as American corporations try to remain competitive, Broaddus said.

By trying to restrain economic growth before inflationary expectations take root, the Federal Reserve should be able to dampen demand without causing a recession, the Fed president said.

``We've got a reasonably good shot at a soft landing if we play our cards right,'' he said.

But economists' records for forecasting the pace of business expansion has been erratic during the past year, he cautioned. Instead of slowing in the second half of 1994, as many economists predicted, the nation's output of goods and services accelerated.

Broaddus' remarks have been closely monitored in the financial markets because of his reputation as an ``inflation hawk'' and a vocal proponent of curbing inflationary expectations.

During 1994, he served a one-year term on the Fed's Open Market Committee, the influential group that shapes the nation's monetary policy. Although he no longer casts a vote on the committee, Broaddus still attends its meetings and participates in committee discussions.

The president of the New York Federal Reserve Bank holds a permanent seat on the Open Market Committee. Broaddus and the presidents of the other 11 Federal Reserve banks take turns serving on the committee.

The committee's next meeting is scheduled for March 28. Broaddus declined to speculate about any interest-rate actions the committee might take when it meets.

While offering a generally upbeat picture of the economy's near-term prospects, Broaddus expressed concern about the outlook for federal budget deficits. Much of the reduction in the annual deficit in recent years has come from cutbacks in defense spending, but those cutbacks are unlikely to continue, he said.

If the country expects to further reduce federal deficits, government spending on Social Security, Medicare and Medicaid will have to be brought under control, Broaddus said. ``In the absence of any corrective action, (the federal deficit) will almost certainly re-accelerate down the road.'' ILLUSTRATION: MOTOYA NAKAMURA/Staff color photos

J. Alfred Boraddus Jr. prepares to speak before the Hampton Roads

Chamber of Commerce on Wednesday in Norfolk.

by CNB