By Marjorie Olster

Guynn, who is a voting member of the policy-setting Federal Open Market Committee (FOMC) this year, also said he wanted to ensure that U.S. inflation did not rise much above the levels of the past few years.

``There is no broad-scale evidence that I see yet to suggest that those three (rate) increases have damped demand very much, certainly at the consumer level,'' Guynn told reporters after making a speech to the Downtown Atlanta Rotary Club.

A number of Fed officials, like Guynn, have said they see few signs that three rate increases in 1999 have cooled the red-hot U.S. growth driven by strong consumer and business demand.

Guynn said, however, that the full impact of the rate hikes may not have hit the economy yet and could work with lag time.

The FOMC, which meets next week, is widely expected to raise the 5.5 percent fed funds rate on overnight bank lending to 5.75 percent in an effort to slow the economy and prevent inflation.

While markets had already been bracing for a rate hike, Guynn's remarks set off some jitters in the stock market, where players fear the possibility of an even larger Fed move next week. Market analysts said he contributed to a hefty sell-off in stocks.

``The market is very sensitive to interest rates,'' said Joe Barthel, chief investment strategist at Fahnestock & Co. in Great Neck, N.Y. ``The $64,000 question is whether the Fed will raise rates 25 basis points or 50 basis points in February.'' The Dow Jones industrial average closed down 243 points, or 2.16 percent, at 11,008.

Guynn said he was determined not to lose ground in the fight against inflation after substantial progress in recent years.

``I would not like to see inflation go a lot higher than we've had in the last couple of years,'' Guynn said. ``I'm absolutely not interested in seeing a deterioration in the inflation performance that we've seen.''

Guynn and San Francisco Fed President Robert Parry, who spoke at a separate event in Los Angeles, both observed that a number of one-off factors had conspired to keep price pressures low in the past few years but were now working against the Fed's inflation-fighting efforts.

Foreign demand is reviving after the global economic crisis of 1997-98, oil, commodity and health-care costs are on the rise, Parry told the National Association for Business Economists.

``Labor markets in the U.S. appear to be quite tight,'' said Parry, who is also a voting FOMC member this year. ``If history is any guide, this can be expected to show up in faster increases in labour costs than we've seen so far.''

Guynn also expressed concerns about the diminishing pool of available labour, saying the supply of workers was not endless. ``There absolutely are limits,'' he said.

But the Atlanta Fed chief, on the whole, was optimistic about the U.S. economic outlook, saying he expected the near record-length expansion to continue with rising productivity growth, at least in the near term.

He forecast real U.S. GDP would grow 3-1/2 to 4 percent this year, that the consumer price index would rise 2-1/2 to 2-3/4 percent, and predicted an unemployment rate around 4.0 percent.

``I'm optimistic that there are some new things about this economy that are contributing to the strong growth and low inflation,'' Guynn said.

Dallas Fed President Robert McTeer, speaking in Texas, also plugged the notion of a ``new economy,'' in which faster growth with low inflation was possible because of higher productivity.

He said he believed the economy could continue to grow 4.0 percent annually, even if the growth of the labour force slowed. That is a bit higher than the rate most Fed officials would consider sustainable, without inflation, over the long term.

Last year, McTeer was the lone dissenter against two rate hikes when he was a voter on the FOMC. He made his mark as a vocal defender of the new economic paradigm which argued that with technology and improvements in productivity, the economy could grow faster now without inflationary dangers.