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The U.S. economy is poised to cruise into the new millennium with continued price stability and a vibrant job market, New York Federal Reserve Bank President William J. McDonough said in Buffalo Thursday.

"I'm very confident about the future trend of the American economy. . . . Ten years ago, the only question was 'who is going to clean our clocks first, Japan or Europe?' Who is asking that now?

"We are so far ahead of other countries of the world in the areas of new business development, bio-technology and information technology that we essentially have no competitors," McDonough said at the University at Buffalo.

His visit gave UB's masters of business administration students a chance to start their academic year with a guest lecture from one of the nation's foremost economic leaders. McDonough is vice chairman of the Federal Open Market Committee, which sets monetary policy.

He also spoke to a group at Canisius College Wednesday night.

McDonough said the Fed's two interest rate hikes this summer appear to have accomplished their intended effect.

"I think they have been very well received and the economy has benefited from them," he said about the rate hikes. "I think we have it just right now."

Some analysts speculate the committee may raise rates again during a scheduled meeting next month. Stock prices have fluctuated significantly this year, typically dropping in the face of potential rate hikes.

McDonough said he has no fool-proof theory for measuring proper stock market valuation, but is not too concerned about the historically high price-to-earnings ratios.

"If you look at individual stocks, in relation to research and development and projected future earnings, it's very hard not to conclude that individual stocks are behaving very rationally," he said.

The high prices for Internet stocks that are not yet profitable are akin to playing at a casino, he said. Some investors will strike it rich, while others lose, he said.

McDonough said the technological revolution and increased productivity have been primary contributors to the economic expansion. If the U.S. economy keeps expanding until February, this will be the longest run of economic growth in U.S. history.

The nation's 4.2 percent unemployment rate is at a 30-year-low. Even in Western New York's creeping economy, more people are working. The combined Erie and Niagara County unemployment rate of 5.6 percent in July was the fourth-lowest for the same month over the last 25 years.

But the region has one of the slowest job-creation rates in the nation and is still losing population, according to Census Bureau projections.

McDonough told local students they will be well positioned to find work in the growing economy, because they are trained in modern technology. Electronic commerce is changing the way the world does business, he said.

"We think E-commerce is a reality and a very good thing, because it's an efficient distribution system," the Federal Reserve leader said.

The workers already in the job market who lack adequate skills are in trouble, he said. While many Americans have enjoyed tremendous growth in personal wealth during the 1990s, the lowest wage earners have not benefited, he said.

The stratification between rich and poor in America will an important issue in years ahead, he said.

"What are we going to do about the fact that the bottom 20 percent of our society is not doing well? I think we have to help people help themselves," McDonough told the UB students.

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