WICHITA, Kan. -- The U.S. economy faces continued modest growth and improved inflation prospects, Kansas City Federal Reserve President Thomas Hoenig said.

Mr. Hoenig, speaking to the Chamber of Commerce here, said inflation prospects have improved markedly since the first quarter.

"That means we have the capacity for long-term interest rates to come down, as they have," he added.

Mr. Hoenig said that while many parts of the economy remain sluggish, there are some brighter spots. He said these included improved corporate earnings, record bank profits, improved debt levels and an improved labor market.

Labor Gains Are Cited

He said that although it appears that the economy will grow at about 2.5% rate or less, instead of 3%, as expected earlier, "remember, that is still positive growth."

Mr. Hoenig noted that as 1993 has unfolded, the economy has proved more sluggish than expected.

He said although manufacturing employment is slipping, and many of those positions are temporary, "the labor market, another important factor for us, is showing improvement."

The regional Fed chief noted that the U.S. economy isn't being helped by the slow economic growth of some major trading partners. He cited recession in Europe and slow growth in Japan.

Flood's Impact Assayed

Mr. Hoenig said the fiscal package recently adopted by Congress is helpful to the economic outlook

He noted that there has been disagreement over the approach, but said it's important for the U.S. to have a plan addressing the deficit.

Commenting on the Midwest economy, he said the Mississippi River floods had a tragic impact on a personal basis but won't have much effect on the national economy.

"In a $6 trillion economy, or even the economy in the Midwest, it won't be devastating," he said.

Although flooding has caused substantial damage to crops such as corn and soybeans, "that will be offset by higher prices, so others will reap benefits."

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