--Broaddus says risks mainly weighted toward slow US economic growth
--Broaddus says some recent economic data "tentatively more favorable"
--Broaddus says he is not expecting sharper US economic weakening
--Broaddus sees slower US growth in 1st half; pickup in 2nd half
--Broaddus says US labor market still "reasonably strong"
--Broaddus says ex-manufacturing, US economic picture "less dire"
--Broaddus says latest US inflation data "very favorable"

By Edward Kean, BridgeNews
Washington--Feb. 15--The Federal Reserve's recent "very strong" actions to reduce interest rates show the central bank is ready to "act decisively" to prevent an excessive slowing in the U.S. economy, Richmond Fed President Alfred Broaddus said Thursday.
* * * In remarks to Bennett College in Greensboro, N.C., monitored here, Broaddus also said he agrees that the risks in the economy are mainly weighted toward slow economic growth rather than higher inflation. While conceding the economy has softened "considerably," Broaddus said some recent economic data have been "tentatively more favorable," and that he does not expect a sharper weakening in activity
He said he expects the economy to continue to expand this year, and echoed the comments of other Fed officials that the economy should pick up in the second half of 2001, following a "significantly slower" first half.
Broaddus is not a current voting member of the Federal Open Market Committee, the Fed's policy-making arm. He is generally regarded as one of the FOMC members who is most willing to raise interest rates to fight inflation.
Broaddus specifically said Thursday the most recent inflation data have been "very favorable." But he stressed the Fed still must keep its eye on the longer-run inflation outlook, noting a slight pickup in the "core" inflation rate.
Like other Fed officials, Broaddus stressed that the weakening in economic activity has been most evident in the manufacturing sector. Outside manufacturing, "the broader economic picture is less dire," he said. But Broaddus acknowledged that economic difficulties in the "visible" manufacturing sector can affect attitudes toward the overall economy. Broaddus said the Fed's recent two half-point cuts in interest rates were a "strong and reassuring signal" that the Fed is "alert" and well aware of the change in economic conditions.
However, recent economic data, such as the stronger-than-expected increases in payroll jobs and retail sales, suggest more that the economy is in better shape than some commentators have suggested, he said. While the "downside risks are greater than they have been," the latest information suggest some commentators have painted a "darker picture" about the economy than is actually the case, he said.
Looking ahead, Broaddus ticked off a variety of reasons why the economy should continue to expand this year.
While the unemployment rate has risen slightly, the labor market is still "reasonably strong" and household disposable income is still expanding, he said.
In addition, the housing market, which typically moves in advance of economic shifts, is "not in free fall," Broaddus stressed.
The decline in gasoline prices should help support demand and the desire of companies to invest in high-technology equipment to compete effectively should put a "floor" under business capital spending, he said.
Stressing the Fed will try to be "sensible" in its interest rate decisions, Broaddus said the Fed will not be "blowing with the wind," by reacting to each new piece of information. Rather, he suggested, it will try to take a longer-term approach.
A key question for the year is what happens to productivity growth, he said. If productivity continues to expand at a rate of 3% per year, that means the U.S. economy can expand about 4% per year without inflation, which he said would be an "extraordinary performance." End Copyright 2001 Bridge Information Systems Inc. All rights reserved.