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To: Giraffe who wrote (22141)	10/22/1998 4:25:00 PM
From: Giraffe	Respond to of 116779

Thursday October 22, 3:54 pm Eastern Time US growth slowing, inflation risk lingers-Broaddus NEW YORK, Oct 22 (Reuters) - The U.S. economy will slow down heading into 1999 as the global economic and financial turmoil takes its toll on the robust pace of expansion seen over the past 2-1/2 years, Alfred Broaddus, president of the Federal Reserve Bank of Richmond, said on Thursday. ''The effect (of the global crisis) on the general economy... so far has been considerably less dramatic than in financial markets,'' Broaddus told the Fed Correspondents Association. ''The downside risk is certainly there and greater than it has been for some time,'' Broaddus pointed out. ''There are good reasons and a strong case to expect U.S. economic activity will decelerate next year,'' the Richmond Fed president added, while citing U.S. Gross Domestic Product (GDP) growth forecasts of 2.0 to 2.5 percent in 1999, down from the 3-3/4 percent average seen from the beginning of 1996 to mid-1998. Broaddus cited four main reasons to base the U.S. slowdown forecast on: -- Japan's recession will continue to weigh on Asia and the rest of the world, slowing down demand for U.S. goods. -- the recent decline in the value of the U.S. dollar will not be sufficient to offset the drag on U.S. exports, -- the decline in the stock market from its high in July ''will probably dampen household confidence,'' -- the recent reluctance for risk taking in U.S. financial markets may have a chilling effect on investments. The Richmond Fed president, however, said the economy has given only limited signs of slowdown so far, such a weaker payrolls and industrial production. ''But consumer spending and business investments have so far held up reasonably well,'' Broaddus stressed. The Richmond Fed president said Japan's ability to resolve its banking system problems, continued U.S. fiscal discipline, and the Fed's pursuit of long-term price stability are key factors that should help sustain the U.S. expansion. Broaddus, a long-time anti-inflation ''hawk'' who dissented three times in 1997 in favor of higher interest rates, also cautioned ''the (inflation) upside risk has not vanished and should not be ignored.'' Credible Fed policy, Broaddus added, ''can provide an anchor not only for our economy and markets but the world's economy and markets.'' Broaddus, who is not a voting member of the Federal Open Market Committee (FOMC) this year, declined to disclose the details of the FOMC conference call that preceded the October 15 inter-meeting Fed easing. ''The action speaks for itself,'' he said. Asked whether the recent easing moves were similar in nature to the steps the Fed took to calm financial markets after the stock market crash of 1987, Broaddus answered, ''The current situation... is not as severe as in 1987, although it does produce a downside risk'' as credit restrictions may eventually weigh on economic activity. Finally, Broaddus denied the Fed was being led down the path of easing by the marketplace and stressed the U.S. central bank was independent from political or other pressures. --------------------------------------------------------------------------------