Federal Reserve official dissents against Ben Bernanke, others

Posted Aug 17, 2010 by Andrew Moran
The Federal Reserve Bank of Kansas City President, Thomas Hoenig, warned in a town hall-style meeting that the Federal Reserve`s monetary policy strategy could lead to more harm and could potentially re-start the boom-and-bust cycle.
U.S. Federal Reserve Building.
Dan Smith (CC BY-SA 2.5)
The United States is still facing economic woes as the country has nearly 10 percent unemployment, a weakening dollar, a national debt of nearly $14 trillion and $111 trillion in unfunded liabilities and expenditures.
On Friday, President of the Federal Reserve Bank of Kansas City, Thomas Hoenig, criticized the Federal Reserve’s monetary policy, which he states could lead to more disaster, according to the New York Times.
Speaking at the University of Nebraska, Hoenig said: “Monetary policy is a useful tool, but it cannot solve every problem faced by the United States. In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”
Hoenig went onto state that he wished “free money was really free” and that there was an easier, painless way to move way from a severe recession and into economic growth “but there is no shortcut.”
The Fed President questions the Federal Reserve’s zero policy rate because it gives “legitimacy to questions about the sustainability of the recovery and adds to uncertainty.” He added that the market would love to have the zero policy rate “indefinitely” because they receive a guaranteed return on “free money.”
Hoenig has many people who are for or against his recent comments, reports the Journal Star.
Fixed-income trader, Bernard Thomas, stated that the Fed President understands the situation: “The U.S. economy was over-stimulated for over two decades, which led to rates of consumption and increases in asset values, such as home prices, to rise to levels which were beyond their structurally possible potential. Now we all have to come back to earth.”
Meanwhile, Peter N. Ireland, Professor at Boston College and former Economist at the Richmond Federal Reserve, believes Hoenig’s remarks complicate Chairman Ben Bernanke’s initiatives to show a message of unity.
“This is not to say that dissent is not allowed, but just to say that the way the dissent is being presented to the public seems highly counterproductive right now.”