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

DATE: Friday, October 20, 1995               TAG: 9510200492
SECTION: BUSINESS                 PAGE: D1   EDITION: FINAL 
SOURCE: BY TOM SHEAN, STAFF WRITER 
                                             LENGTH: Medium:   65 lines

ECONOMY WILL CONTINUE TO GROW, FED OFFICIAL SAYS

While Washington policymakers wrangled over budgetary issues, the head of the Richmond Federal Reserve Bank expressed confidence Thursday that the country can achieve sustained economic growth with little or no inflation.

``For the first time in many years there is serious talk of moving the budget back into balance in a reasonably well defined period of time,'' said J. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond.

Despite such upbeat projections, the Federal Reserve will not let up in its campaign for zero inflation, Broaddus told a luncheon gathering in Norfolk of certified public accountants and bankers.

If the nation's central bank expressed satisfaction with the current inflation of 3 percent, there would be doubts about its determination to achieve stable prices over the long term.

``The next question would be, `What's wrong with 3 1/2 percent, 4 percent or 5 percent?' '' Broaddus said.

Investors in bonds and other fixed-income securities are concerned that rapid business expansion might fuel inflation, which would reduce the value of their investments. When they anticipate higher inflation, bondholders typically demand higher yields from borrowers.

But for now, it appears that the U.S. economy is in ``reasonably good shape'' and will continue its current rate of growth with modest inflation, Broaddus said.

Throughout 1994 and earlier this year, the Fed came under attack from homebuilders and automakers for raising short-term interest rates.

Those increases were necessary to dampen robust business expansion and expectations of higher inflation, Broaddus told members of the Tidewater Chapter of the Virginia Society of Certified Public Accountants and the Hampton Roads Group of the Robert Morris Associates.

``The economy was pushing pretty hard at this time last year,'' which triggered fears that it might overheat, he said. Despite indications that the economy is again picking up steam, fears of overheating have subsided in recent months.

Broaddus cited several favorable developments for the U.S. economy, including increased productivity and strong export activity. Faced with fierce competition from abroad, American businesses continue investing in new equipment.

One cloud on the horizon, he said, is the rising level of consumer debt, which could crimp retail spending.

``Consumers are cautious, but they are still buying when they see a good deal,'' said Broaddus, who joined the Richmond Federal Reserve in 1970 as a research economist and became its president in early 1993.

Broaddus, who served a one-year term on the Fed's Open Market Committee in 1994, declined to speculate on how the committee might apply these developments to its interest-rate policies.

The committee, which reduced short-term interest rates when it met in July, is scheduled to meet Nov. 15. ILLUSTRATION: Color photo

MOTOYA NAKAMURA/The Virginian-Pilot

``For the first time in many years, there is serious talk of moving

the budget back into balance,'' says J. Alfred Broaddus, president

of the Federal Reserve Bank of Richmond.

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