May 19 · Published July 2, 1998

Statement·Presser·Minutes

May 19, 1998 FOMC Minutes

Vote

• Roger W. Ferguson, Jr.
• Edward M. Gramlich
• Alan Greenspan
• Thomas M. Hoenig
• Jerry L. Jordan ↑ dissented
  • 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.
• Edward W. Kelley, Jr.
• William J. McDonough
• Laurence H. Meyer
• Cathy E. Minehan
• Susan M. Phillips
• William Poole ↑ dissented
  • Mr. Poole dissented because he believed that the sustained increase in money growth in recent quarters and associated accommodative conditions in the credit markets pointed to rising inflation. Although faster productivity growth suggested that trend output growth might be modestly higher than previously thought, the growth rate of aggregate demand over the past two years clearly had exceeded the economy's long-run growth potential. Without a reduction of aggregate demand growth, inflation would rise. In his view, the Federal Reserve should therefore take prompt action to reduce money growth to limit the rise in inflation and to avoid an increase in longer-term inflation expectations, which would tend to destabilize aggregate employment and financial markets.
• Alice M. Rivlin

From the minutes

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What changed from the previous meeting’s minutes

• Unemployment rate fell from 4.6 percent in February to 4.3 percent in April.
• Two members dissented (Jordan and Poole) versus one (Jordan) previously.
• Dollar rose against emerging Asian currencies, versus depreciating previously.
• M2 and M3 growth slowed in late April and early May after brisk April expansion.
• Committee retained asymmetric directive tilted toward restraint, unchanged from prior meeting.
• Next meeting scheduled for June 30-July 1, versus May 19 previously.

Summary generated automatically from the two documents.

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