24 May 2004 16:17 GMT
Fed's Broaddus: Fed To Sustain Low-Inflation Environment
WASHINGTON (Dow Jones)--The Federal Reserve will act to preserve the current low-inflation environment in the U.S., Richmond Federal Reserve Bank President Alfred Broaddus said Saturday.
"Despite the recent run-up in fuel prices and some other commodity prices, I am confident the Federal Reserve can and will sustain the low-inflation environment that we have spent much of the last two decades establishing," Broaddus said in a commencement speech at Virginia Commonwealth University's School of Business in Richmond. The speech was posted Monday on the Richmond Fed's Web site.
Broaddus, who doesn't vote on monetary policy this year, also was upbeat about the job outlook.
"The most recent developments in the job market are very encouraging. Jobs overall grew at a solid pace in March and April, and most economists now expect more of the same in the months ahead," Broaddus said.
Broaddus told graduates that he is "optimistic" about the longer-term economic outlook, citing continuing gains in productivity. Higher productivity growth may be sustained in the years ahead as businesses adopt recent broad-based technological advances, he said.
Faster productivity growth "means more and better jobs and a substantially higher standard of living," he told the graduates.
Turning to the federal budget deficit, Broaddus said it is "manageable" at its current level, but in the absence of policy adjustments is likely to grow substantially as the baby boomers begin to retire a few years from now.
He cautioned that if the budget deficit continues to increase, it will "reduce overall investment in the economy, reduce the economy's longer-term growth and diminish the improvement in living standards you and your families would otherwise enjoy over the course of your careers."
Broaddus last week said the inflation risks are still balanced and inflation expectations well contained even as price pressures are rising. Inflationary pressures have intensified, but are unlikely to get out of control, allowing Fed policymakers to gradually shift to higher interest rates, he said last week.
Broaddus, who has been president of the Richmond Fed for 11 years, retires in August after a 34-year career at the bank. In July he turns 65, the age at which Fed policy requires Fed bank presidents to retire. Because of his impending retirement, Broaddus won't be attending the next Federal Open Market Committee meeting June 29-30.
Financial markets widely expect the Fed to raise rates at its June policy meeting. The federal-funds target rate has been at a 46-year low of 1% since last June.
-By Deborah Lagomarsino, Dow Jones Newswires
