WASHINGTON - The Federal Reserve will continue to guard against a resurgence in inflation to protect the gains that have showed up in recent months, Fed Governor Edward Kelley said yesterday.

Kelley, in a speech to financial analysts in New Orleans, said the main contribution the central bank can make is to continue seeking to foster stable prices. "If the Fed fails to do this, there is no other institutional way to hold inflation in check and thereby meet this precondition for long-term sustainable growth," he said.

At another point, he warned, "inflation is now falling steadily, but its reemergence two or three years down the road must be prevented."

The Fed released the text of the speech yesterday, which was also delivered to analysts on Wednesday in Houston.

Kelley's comments on long-term control of inflation came amid continued worries in the bond market that, if elected, presidential challenger Bill Clinton will push for enactment of a fiscal stimulus package that will prove inflationary and drive up yields.

Kelley said he expects the third-quarter gross domestic product report due out Oct. 27 to mark the sixth straight quarter of growth.

"Shortly, we will have the data on third-quarter real gross domestic product, which almost certainly crossed over into new high ground," he said. "If so, we are no longer in recovery but now must technically call this an expansion."

The commerce Department report on gross domestic product will mark the last major economic report before the presidential election. Analysts say they expect the figures to show sluggish growth as a result of some gains in consumer spending and an accumulation of business inventories. Inventories rose in August for the third straight month, according to a Commerce report yesterday.

The economy grew at a rate of 1.5% in the second quarter, which was only half the rate of 2.9% in the first quarter.

Kelley was optimistic on inflation, echoing similar comments by Board Chairman Alan Greenspan and other policymakers. Kelley said, "inflation is coming under control."

The Labor Department reported yesterday that the consumer price index in September edged up a scant 0.2% that brought the inflation rate so far this year up only 2.9%. If maintained, that would be the lowest annual increase since 1986, the department said.

Kelley acknowledged complaints of critics that the Fed's policy of gradually lowering short-term rates "has been too little and too late. " At the same time, he said, the steep yield curve suggests financial markets believe the Fed has gone "too far, too fast."

Monetary policy may not have been "necessarily perfect," said Kelley." I will say, however, that I am comfortable that the Fed has performed well and responsibly."

Still, Kelley did not appear to rule out further easing by the Fed, saying "policymakers also cannot be indifferent to the short-run consequences of their actions."

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