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Nation's Economy in Near-Ideal State, Growing Without Inflation

By John M. Berry
The Washington Post

Two government reports issued Thursday showed the U.S. economy operating in a near-ideal state, with continued strong growth but no upward pressure on the nation's extraordinarily low inflation rate.

The reports triggered sharp rallies in both the stock and bond markets, as analysts concluded the good news on inflation means the Federal Reserve is unlikely to raise interest rates in coming months.

The Dow Jones Industrial Average rose 111.85 points, or 1.2 percent, to close at 9063.37. With that rise, stocks have virtually recovered from a tumble Monday caused by fears that the Fed might be on the verge of boosting rates.

In one report, the Commerce Department's Bureau of Economic Analysis said that in the first three months of 1998 the economy grew at a 4.2 percent annual rate after adjustment for inflation, the fastest pace in a year, thanks largely to a surge in both consumer spending and business investment.

Despite the robust growth, the prices of goods and services bought by Americans didn't go up at all, according to the report.

Separately, the Bureau of Labor Statistics said its employment cost index, which tracks employers' costs for both wages and salaries and benefits, rose 0.7 percent for the three months that ended March 31. That was lower than the 1 percent rise in the fourth quarter of last year, and considerably lower than many analysts had expected.

At a news conference, President Clinton hailed the reports as fresh evidence that his policies are working to foster the healthiest economic expansion in more than a quarter century, and he declared: "We are living in an American economic renaissance in which opportunity is abundant."

But the remarkable continued confluence of low unemployment, inflation and interest rates is attributable in part to the economic turmoil in Asia, according to private economists.