BOISE, Idaho -- The U.S. economy will experience moderate growth of 2.5% to 3% over the next year and some downward adjustment of inflation, Robert Parry, president of the Federal Reserve Bank of San Francisco, said in a speech to local business leaders last week.

Acknowledging that the growth rate remains disappointing, he termed it respectable.

"In fact, it may exceed the economy's long-run potential growth rate," Mr. Parry said. "And it is consistent with setting the stage for stronger, less volatile economic growth in the long term."

He said this would be accomplished through better prospects for reducing the federal budget deficit and progress in reducing inflation in the U.S. and in most of its major trading partners.

Mr. Parry said the Fed deliberately proceeded cautiously in lowering interest rates because it is concerned about the message it sends to financial markets.

"If we move too rapidly, markets would worry about a possible rise in inflation, which would raise long-term interest rates and harm the recovery," he said.

Mr. Parry said the Fed has the same concerns about inflation as Japan and the European Community. "That's why the Fed has made clear that over the long run its goal is to move gradually toward price stability," he said.

Mr. Parry said Germany's efforts to control inflation through high interest rates have led to recessions and currency crises in other European countries. But the Europeans are still committed to maintaining low inflation.

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