Jerry L Jordan

Mr. Jordan dissented because he believed that the unsustainably rapid growth of domestic demand--fueled by the acceleration of money and credit growth in the past year--was reflected in the recent sharp increase in imports and rising trade deficits. As U.S. output growth slows significantly from the rapid pace of 1997 and early 1998, it will be essential that domestic demand also slow. The very welcome progress toward eliminating inflation in recent years has contributed to the outstanding performance of the economy. Allowing domestic demand to continue to exceed domestic production would run the risk that corrosive effects of rising inflation would undermine future growth prospects. Furthermore, the resultant trade and current account deficits would have to be matched by ever larger inflows of foreign capital. Modest monetary restraint at this time might prevent either the buildup of inflationary imbalances that would eventually necessitate future policy restraint or unsustainable capital flows. In either case an economic contraction might become unavoidable. The meeting adjourned at 12:40 p. m. Donald L. Kohn Secretary Footnotes 1 Attended portion of the meeting relating to the discussion of the Committee's consideration of its monetary and debt ranges for 1998 and 1999. 2 Attended portions of the meeting relating to the Committee's review of the economic outlook and consideration of its monetary and debt ranges for 1998 and 1999. Return to top Home | FOMC Accessibility To comment on this site, please fill out our feedback form. Last update: August 20, 1998, 2:00 PM

Mr. Jordan also noted that the monetary and credit aggregates had accelerated further from already rapid growth rates in 1997. In his view, these high growth rates were fueling unsustainably rapid increases of real estate and other asset prices, and reports of "too much cash chasing too few deals" were becoming more frequent. Anticipated gains on both real and financial investments had risen relative to the cost of borrowed funds. In these circumstances, it was increasingly likely that the Committee would face a choice between smaller increases in interest rates sooner versus larger increases later. He added that maximum sustainable economic growth occurs when businesses and households act on the assumption that the dollar will maintain its value over time, and nothing he had heard from consumer groups, bankers, or other business people in his District led him to believe that decisions were being made in the expectation that the purchasing power of the dollar would be stable. Furthermore, expectations that market values of income-producing investments would continuously rise relative to underlying earning streams were not consistent with a stable purchasing power of money. He also believed that the view that real interest rates currently were high was not confirmed by observed behavior. Bankers told him that both consumers and businesses believed that credit was cheap and plentiful. These potentially inflationary conditions and imbalances in the economy were not conducive to sustained maximum growth.

Mr. Jordan dissented because growth rates of various measures of money and credit in the second half of 1997 and the first quarter of this year were not consistent in his view with continued progress in reducing inflation. Recent price statistics understated the trend rates of inflation. The one-time effects of falling oil prices, lower food prices, and recent appreciation of the dollar on foreign-exchange markets provided only a temporary reduction of inflation. While some reacceleration of reported rates of inflation was probably unavoidable, sustained rapid money growth would risk even higher inflation in future years. The durability of the economic expansion would be jeopardized by price and wage decisions reflecting expectations that the purchasing power of the dollar would decline at faster rates in the future. Once such expectations became imbedded in the economy, even stronger policy actions would be required in order to reestablish a downward trend of inflation.

Messrs. Broaddus and Jordan dissented because they preferred a stronger move toward a more neutral policy stance. In their view, the recent sharp increases in longer-term interest rates indicated clearly that inflationary expectations were rising and that the principal policy risk had become one of remaining accommodative for too long a period. In this environment, they believed that a more aggressive move would underscore the Committee's commitment to fostering sustainable longer-term growth and reduce the risk that a highly restrictive policy might be required at a later date to contain inflation. The Committee then turned to a discussion of the desirability of making an immediate announcement of today's policy decision. All the members favored prompt disclosure in principle, but some expressed reservations about announcing today's decision immediately after the meeting. These members preferred to consider a decision on announcements of policy actions in the context of a broad range of disclosure issues, some of which had yet to be fully explored. Some stressed that they remained concerned about the inhibiting effects of some types of disclosures on the Committee's deliberations, and one member emphasized that