Originally created 01/07/97

Inflation could be too high



ATLANTA - Warning against complacency toward inflation in the face of continued economic growth, Atlanta's Federal Reserve chief said Monday that monetary policy-makers should debate whether the current inflation rate of 3 percent is too high.

"Now that we've achieved a steady inflation rate of around 3 percent or less for some five years, the next question becomes, `Would an even lower rate of inflation optimize economic performance?'°" Atlanta Fed President Jack Guynn told a civic club audience.

Mr. Guynn, beginning his second year as one of the central bank's 12 regional presidents, did not say if he supports raising interest rates to slow the economy and lower inflation.

Mr. Guynn's opinions may carry more weight this year on the Fed's Federal Open Market Committee, which debates and sets monetary policy, because he's one of five regional presidents who get to vote in 1997.

The presidents rotate in and out of voting positions each year.

In his remarks Monday, Mr. Guynn predicted the economy should continue its slow, steady expansion in 1997 though "perhaps a tad slower than last year."

He also predicted inflation should hover at about 3 percent.

"If we want to maintain the current rate of inflation, then the Fed's current stance is probably appropriate under current conditions," Mr. Guynn said. "If we want to make further progress on inflation, then we need to be looking for opportunities over time to nudge the rate still lower."

The Fed hasn't changed interest rates since Jan. 31, 1996, when it lowered the federal funds rate - the overnight lending rate between banks - from 5« percent to 5¬.

Mr. Guynn said he's also concerned about a growing public complacency toward deficit reduction, though he told reporters he's optimistic that Congress will have bipartisan support this year for balancing the federal budget.

He also said a constitutional amendment requiring a balanced budget should be introduced and debated, though he would not say if he supports adopting such an amendment.