businessmen for easing the impact of a tight US labour market. Ahmed ElAmin reports The president and chief executive officer of the Federal Reserve Bank of Atlanta believes inflation will remain under control for the rest of the year, despite the pressures of a booming economy.

"I have consistently overestimated inflation,'' Jack Guynn told reporters after a speech at the Hamilton Princess yesterday. "I am pleasantly surprised by the numbers that are coming in. Inflation is going to be well behaved.'' However he warned consumers, bankers and investors not to become complacent about the sustained growth in the economy.

"Investors should continue to focus on the fundamentals,'' he said. He also doesn't believe tight labour markets will constrain growth looking ahead. The economy has been operating in a tight labour market regime for the past two years and so far there has been no indication of a drag on the economy.

He said business people have been creative in the use of technology and other management techniques to alleviate the effect of a tight labour market in the US.

Mr. Guynn said the positive effects from a tight labour market were higher employment rate for people who normally wouldn't have been working, and a growth in the aggregate income.

"A tight labour market might become a binding constraint at some period,'' he said. "But so far there have been no signs that it is.'' Earlier Mr. Guynn talked about the possible effects of the Year 2000 computer problem on the banking industry. He was speaking before the annual convention of the Georgia Bankers Association. The convention ends today. Technological innovation has played a large part in helping to sustain the current eight year of economic expansion, he said. Technology is also having a great impact on the financial industry.

"In the short run technology cuts costs and grows revenues at the same time,'' he said. "In the long run, it changes the very nature of financial intermediation.'' For example mortgage and credit card-backed securities have broken the loan granting process into component parts, each capable of being priced and generating revenues.

Banks can now earn fees for originating, underwriting, servicing and portfolio investment, and securitisation. As more bank assets become eligible for securitisation, the use of derivatives for risk management and revenue will become more widespread, he predicted.

"Another example of intellectual and computer technology is credit scoring,'' Mr. Guynn said. "Banks with this technology are able to approve or deny loan applications on the spot, lowering substantially the costs of loan application reviews. And banks that combine credit scoring with the sort of direct marketing made possible by data mining are able to substantially increase the size of their potential loan pool. The result is higher revenues and lower operating costs.'' He also believes banks will be able to earn additional fees by offering on-line and personal computer banking, just as they have learned to reap more fees from ATMs and other voice response systems.

Technology has increased the competition within the industry. Since most of the technology is off the shelf, almost any company can use it to compete with banking services.

Mr. Guynn predicts the growth of megabanks that will offer a one-stop type of financial services to consumers, the growth of direct marketing and selling through electronic and on-line means, a proliferation of specialised financial boutiques, and the need for small and community banks.

"The first two -- the megabanks and the on-line companies -- have concluded that technological developments are taking them in opposite directions,'' he said. "For the big banks, those innovations include data mining, securitisation, credit scoring and other specialised software and intellectual technology. The big development for disintermediation, of course, is the Internet. The boutiques will use all of this technology. And for small and community banks, I think there's a real opportunity to help guide consumers through this brave new world.'' He also called on the banking sector to make progress in ensuring they won't be unduly affected by the Year 2000 computer problem.

UPBEAT MESSAGE -- Jack Guynn