By: Dr. Adli Kandah
The debate over whether Jordan should reduce interest rates whenever the U.S. Federal Reserve does so is often presented as a question of policy choice. In theory, countries that peg their currencies to the dollar must maintain a sufficient interest rate differential to protect reserves and deter capital flight, yet they may still enjoy some room for maneuver in timing and magnitude. In practice, however, Jordan’s experience over the past three decades reveals a far tighter relationship with U.S. monetary policy than theoretical discussions usually imply.
Since fixing the dinar at 0.709 per dollar in 1995, Jordan has effectively anchored its monetary framework to the Federal Reserve. The so-called “partial independence” of monetary policy has been largely tactical rather than strategic. Interest rate decisions by the Central Bank of Jordan (CBJ) have been dominated by one overriding objective: safeguarding the peg, preserving foreign reserves, and preventing dollarization in a small, open economy with high import dependence and relatively open capital accounts.
The original article correctly invokes the “impossible trinity” and rightly emphasizes monetary stability as a development objective in its own right. It also correctly notes that Jordan does not always match the Fed’s moves point-for-point, citing 2019 as an example of caution and staged adjustment. Where the analysis becomes problematic is in overstating the degree of effective discretion available to the CBJ. Historical evidence shows that divergence in magnitude has been the exception, not the rule, and that any such divergence has been modest, temporary, and quickly corrected once pressures on reserves or capital flows emerged.
Over the late 1990s and early 2000s, as the Fed tightened during the dot-com boom and then cut aggressively after the 2001 recession, the CBJ moved in the same direction with minimal delay. During the global financial crisis of 2008–2009, Jordan cut rates sharply alongside the Fed to maintain confidence and liquidity—there was no realistic alternative under a hard peg. The same pattern re-emerged during the COVID-19 shock in 2020, when coordinated easing became a necessity rather than a policy preference.
Perhaps the clearest evidence of constrained independence came during the tightening cycle of 2015–2018 and, more decisively, during the global inflation shock of 2022–2023. Despite weak domestic growth and limited inflationary pressure generated at home, Jordan raised interest rates repeatedly and rapidly, closely shadowing the Fed’s aggressive hikes. These decisions were driven not by domestic cyclical needs but by the imperative to defend the dinar, protect deposits, and sustain confidence in the monetary regime.
In this context, interest rates in Jordan function far less as a tool for stimulating growth and far more as an exchange-rate defense mechanism. Monetary conservatism, often presented as a deliberate policy stance, is in reality a structural necessity imposed by the peg. The interest rate is not a flexible lever for demand management; it is a safety valve for monetary stability.
The following table summarizes the empirical record of Federal Reserve and Central Bank of Jordan rate movements over the period 1995–2025, highlighting how closely Jordan has tracked U.S. monetary policy across cycles.
Federal Reserve vs. Central Bank of Jordan: Key Interest Rate Cycles (1995–2025)
Period | Global / US Context | Fed Policy Rate Moves | CBJ Policy Rate Moves | Degree of Alignment | Interpretation |
|---|---|---|---|---|---|
1995–1998 | Peg adoption & stabilization | Gradual tightening then easing | Closely mirrored Fed | Very high | Establishing credibility of the peg |
1999–2000 | Dot-com boom | Hikes ≈ +175 bps | Parallel hikes | High (near-identical) | Interest parity to deter capital outflows |
2001–2003 | Dot-com crash & 9/11 | Cuts ≈ –475 bps | Strong cuts | High | Imported easing to preserve stability |
2004–2006 | Global expansion | Hikes ≈ +425 bps | Gradual hikes | High (slight lag) | Tactical timing, same direction |
2007–2009 | Global financial crisis | Cuts to near zero | Aggressive cuts | Very high | Crisis removed any room for discretion |
2010–2014 | Post-crisis low rates | Near zero | Low, stable rates | High | Peg maintenance under abundant liquidity |
2015–2018 | Fed normalization | Hikes ≈ +225 bps | Stepwise hikes | High | Peg defense despite weak growth |
2019 | Global slowdown | Cuts –75 bps | Cuts –50 bps (staged) | Moderate divergence | Exceptional, low-stress year |
2020 | COVID-19 shock | Cuts to zero | Sharp cuts | Very high | Coordinated crisis response |
2021 | Recovery | On hold | On hold | High | Imported monetary stance |
2022–2023 | Global inflation shock | Hikes ≈ +525 bps | Rapid hikes | Extremely high | Forced alignment under peg |
2024 | Peak rates & pause | Pause | Pause | High | Reserve and confidence management |
2025 | Expected easing | Gradual cuts | Cautious following | High (with lag) | Directional following with sequencing |
The empirical pattern is unmistakable. Over three decades, Jordan has never sustained a policy path that diverged meaningfully from the Federal Reserve’s direction. Differences in magnitude or timing have been tactical adjustments designed to smooth market reactions, not expressions of true monetary autonomy. In effect, U.S. monetary policy has served as the external anchor of Jordanian monetary conditions.
The central lesson is that sound monetary policy under a hard peg should not be judged by how creatively it departs from the Federal Reserve, but by how effectively it preserves stability, confidence, and reserve adequacy. In Jordan’s case, following the Fed has not been a matter of imitation, but the unavoidable price of exchange-rate credibility.
