MEXICO -- since expectations of inflation still linger, the United States has not completely vanquished the problem, said Jerry Jordan, president of the Federal Reserve Bank of Cleveland.
"We have yet not reached an environment where households believe that the rate of inflation in the future will be lower than it is today," Mr. Jordan said at a Press conference.
He cited surveys and statistics on refinancing of home mortgages that reveal expectations of rising inflation.
"We would like people to think about the U.S. dollar in the same way as they think about the number of feet in a mile or ounces in a pound. We do not yet have that," Mr. Jordan said while in Mexico for a conference sponsored by the Ludwig Von Mises Cultural Institute.
He said the Federal Reserve must convince households and businesses that "future inflation will be lower than it is today."
U.S. consumer prices are rising 3.1% on an annual basis versus 2.9% in calendar year 1992.
The independence of a central bank does not alone ensure control of inflation, he said, referring to recent Mexican legislation creating an independent bank.
"It is a question of having political support to achieve price stability," Mr. Jordan said. "Independence is not the critical factor."
He noted that despite its independence, the U.S. Federal Reserve could not prevent the Depression of the 1930s nor the high inflation of the 1970s.
He added that globalization of markets helps central banks in their efforts toward price stability. "Anyone who gets out of step in this global financial market will get a clear message," he said.
Mr. Jordan added that as Mexico benefits from a big inflow of foreign capital and repatriated cash, maintenance of investor confidence is crucial.
"As long as [confidence] is there, that makes the central bank's job easier," Mr. Jordan said.
He said pegging the currencies of the United States, Mexico, and Canada is not a workable idea. Central banks of the three countries should, however, keep in close contact about their respective currencies, he said.