Fed's Jordan warns against inflationary policies
Thursday January 21, 3:01 pm Eastern Time
NEW YORK, Jan 21 (Reuters) - Federal Reserve Bank of Cleveland President Jerry Jordan on Thursday warned against the danger of governments encouraging inflationary monetary policies.
''Governments, and especially those that heavily discount the future, will always be tempted to instruct or to pressure their central banks to issue excessive amounts of money,'' Jordan told the Fraser Institute in Calgary, Alberta.
The speech on ''Economic Policies for Sustained Prosperity,'' was also available in New York.
''The effects of such short-sighted government policies are transitory at best. As people alter their behavior in the face of inflation, there is an increase in the costs of conducting exchanges,'' added Jordan who, as a voting member of the Federal Open Market Committee (FOMC) in 1998, dissented a record five times in favor of tighter Fed policy.
''Certain types of rules can enhance a central bank's reputation by signaling the government's intention of maintaining the quality of its currency. Examples include explicit price-level targets,'' added Jordan whose Fed bank has done extensive research work on inflation targeting and monetary policy.
Jordan also acknowledged ''a nation must be concerned ... about the stability and reliability of its financial system,'' but he stressed "the condition of a nation's financial intermediaries and financial markets may influence a monetary authority's policy actions but need not compromise its objectives.
''If ex-ante concerns about, or ex-post responses to the condition of financial intermediaries or markets divert monetary authorities from a disciplined, sound policy stance, then overall financial instability can result,'' Jordan also said.
The Fed eased credit three times last fall to alleviate pressure on U.S. capital markets and avoid a negative impact on the U.S. economy.
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