TULSA -- Thomas Hoenig, president of the Kansas City Federal Reserve Bank, said that the tightening of credit policy by the Federal Reserve has been successful in bringing economic growth to a sustainable, noninflationary level.
He said that growth in gross domestic product would continue at a 3% rate over the short term but would drop to 2% to 2.25% in the longer term.
Inflation Still a Concern
Speaking to the directors of the Tulsa branch of the Kansas City Fed, Mr. Hoenig said the outlook for inflation is good. However, he warned that "inflation is not something we should be presumptuous about."
Mr. Hoenig said unemployment, at 6%, was at the low end of the Fed's target range.
He said loan demand in the financial sector is at its best level since 1991, with business loans up 9 1/2% for the year and consumer loans up as well. He said that situation reflected an increase in demand and increased willingness of banks to lend.
Restraint Is Fed's Watchword
Mr. Hoenig said the Fed has learned from its experiences of the 1970s and 1980s and thus will not allow inflation to increase, nor allow the economy to grow faster than it is capable of doing.
He cautioned the financial industry against the misuse of derivatives, saying they are a positive tool for managing risk, but not for "trying to make a fast buck."