economy and said, "the near future is quite favourable''.

Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia told the 94th Annual Convention of The New Jersey Bankers Association at the Southampton Princess Hotel yesterday, "The national economy has been expanding steadily for over six years. The unemployment rate has fallen to low levels, and we continued to experience relatively low inflation.

"This expansion, which is now beginning its seventh year, is the third longest of the post-Second World War era and is still going strong.'' But the potentially good news for Bermuda tourism was tempered by the banker's concern for one area in the Island's target market.

He said, "In the Philadelphia Fed's district, which includes much of New Jersey and Pennsylvania, as well as all of Delaware, almost all segments of the economy are expanding, and people seem confident that expansion will continue through 1997 and 1998.

"The district's economy is generally operating at a high level, with only some pockets of weakness. But some of those pockets are in New Jersey; some parts of South Jersey, in particular, have stubbornly high unemployment.

"New Jersey has been growing more slowly than the nation throughout the expansion, and the pattern of growth has been uneven.

"Job levels are still not back to their pre-recession highs, and the state's unemployment rate has been higher than the nation's. Last year, however, New Jersey's job growth did pick up, which is good news.'' Mr. Boehne is hearing more complaints from district business people that they can't find qualified workers. Demand, he said, appears to be bumping up against available supply, and the sentiment is shared by employers in other parts of the US, which has "raised concern at the policy making level about the risks of an overheating economy.'' He said, "The ultimate goal of monetary policy is maximum sustainable growth, and keeping inflation low is important to achieving that goal. If we have learned anything in the past 25 years, it is that low inflation is a plus for sustainable growth and job creation.

"We cannot buy lasting prosperity by letting inflation creep up. A little upward creep becomes still more creep, and prosperity starts to erode.'' Mr. Boehne said inflation prevention is less painful than curing it after the fact with monetary policy making that may take several quarters to work. And policy makers are continuously weighing the risks of waiting too long to resist inflation against acting too early or unnecessarily.

"There is time for patience,'' he said, "as was the case for much of last year and the early part of this year, and there is a time for action. About a month ago, the Fed took some preventive action and raised the federal funds rate slightly.

"As time goes on, we will have to make additional judgements about where risks lie. Preventive medicine isn't always popular, but it almost always pays off. In 1994, when interest rates were raised to avoid overheating, we were successful in prolonging the expansion and job creation through preemptive action. I think we have a good chance to do the same in 1997.'' He said the US banking industry will continue to undergo fundamental changes in the coming years. The industry, and the Fed, must adapt and use the changes as opportunities and not just view them as challenges.

But the fundamental goals should remain the same: a stable and healthy financial system; a non-inflationary economic environment that supports the maximum sustainable growth of output and jobs; and a stable, efficient payments system accessible to banks of all sizes.

Mr. Boehne did issue warnings to banks at the current stage of the economic expansion cycle, where a deterioration in underwriting standards usually occurs.

"The economy has been good for a long time,'' he said, "and it is easy to become complacent and think that the good news will last forever. Bankers, however, should resist this tendency. Don't plant the seeds of future loan problems. These days, people who have been in banking for five or ten years have limited experience with the performance of loan portfolios during economic downturns.

"We have had only one recession during the past 15 years. So unless some bankers study history, they may not appreciate what happens when the economy turns sour.'' BUSINESS BUC