Tuesday, February 01, 2000
Ohioan gets vote on Fed board
Jordan's a hawk on inflation
BY JEFF McKINNEY
The Cincinnati Enquirer
Jerry Jordan's job as an inflation-fighting hawk for the Federal Reserve should be easier this year.
But that's not great news for consumers and businesses. Fed watchers say that stance by Mr. Jordan, president of the Federal Reserve Bank of Cleveland, which has a branch in Cincinnati, could mean higher interest rates.
Economists say that even if Mr. Jordan and other Fed governors weren't focused on fighting inflation, the Federal Open Market Committee — the group of policy makers that sets interest rates and is led by Fed Chairman Alan Greenspan — would almost certainly have to boost rates this year to cool the sizzling economy.
The Fed has increased rates three times since June, and economists predict that the FOMC will raise short-term rates at least another quarter-point after its two-day meeting today and Wednesday.
“They've raised rates three times, and that has not cooled the economy at all, so they're going to take some action,” said Anthony Chan, a managing director and chief economist at Banc One Investment Advisors in Columbus.
Mr. Jordan this week will begin his fifth on-again, off-again term as a voting member of the FOMC.
Mr. Jordan will be among four new members, the result of a quiet, annual rotation of Fed policy makers that helps determine short-term interest rates. Two are considered in flation hawks — that's Fed-speak for a policy maker more likely to vote to curb inflation with rate increases — and the other two are considered moderates.
Mr. Jordan will be joined by Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond, Va., also a so-called hawk.
They will replace the presidents of the Federal Reserve Banks in Dallas and Philadelphia, both viewed as Fed “doves.” The so-called “doves” are policy makers less likely to boost rates to try to douse the potential for inflation.
The shift offers an interesting peek at the Fed's committee that basically sets the direction of interest rates.
While Fed watchers typically regard the Fed's rate decisions as primarily driven by one person — Mr. Greenspan — observers say the process can be more complicated.
The thrust of the FOMC's rate-setting meetings occurs when all Fed governors and Fed bank presidents present their economic views and comment on what should or should not be done with rates. Economists say that they all have equal say, whether they vote or not.
But Mr. Greenspan typically goes last, giving him a chance to assess the group's mood. He then makes a motion to boost rates, reduce rates or leave them unchanged. Only twice since he became Fed chairman in 1987 has Mr. Greenspan been opposed, Fed watchers say.
With the other two new voters — Atlanta Fed President Jack Guynn and San Francisco's Robert Parry — being viewed as more moderate than Mr. Jordan and Mr. Broaddus, the new group still is considered to be more hawkish than the previous one.
J. Stuart Hoffman, chief economist at PNC Bank in Pittsburgh, said Mr. Jordan's job will be made easier because all FOMC members think that rates need to be raised to slow the economy. Mr. Jordan likely won't have to make a strong case.
“Jerry has a strong and consistent record as being in favor of a credible Fed policy to keep inflation low,” Mr. Hoffman said.
Mr. Jordan's presence on the FOMC would be even more significant if the economy were growing at a slower rate and FOMC members were split on what action to take.
“If the Fed was at a point of neutrality about what direction the economy should go, his presence would be much more significant because of his stance,” Mr. Hoffman said.
And if the Fed's rate increases last year and any this year aren't enough to slow the economy, Mr. Jordan's influence still might be felt.
“His views will be more accepted today than before because unemployment, for example, is at its lowest rate in 30 years,” Mr. Chan said.
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