Aug. 25 (Bloomberg) -- Federal Reserve Bank of Kansas City
President Thomas Hoenig said there’s a limit to how much more
the central bank can help the U.S. economy and that the focus
should now be on solving the country’s fiscal problems.
“We can’t do it all,” Hoenig, the central bank’s longest-
serving policy maker, said in an interview with Bloomberg
Television that airs today. “We have a problem in this country
with debt” and “if we don’t turn to the long run, we will be
dealing with overnight crises for as far as the eye can see.”
The regional bank chief, 64, joined colleagues like Dallas
Fed President Richard Fisher by saying monetary policy can’t be
expected to cure all that ails the economy, and shouldn’t be
used to target high unemployment. Hoenig, who doesn’t vote on
the Federal Open Market Committee this year, said it probably
isn’t “a surprise” to learn that he would have dissented
against the FOMC’s Aug. 9 decision to keep rates near zero
through at least mid-2013.
“Monetary policy is an important tool, it is a valuable
tool, but it is not an exclusive tool,” Hoenig said in the
interview from Jackson Hole, Wyoming, where the Kansas City Fed
is hosting the central bank’s annual symposium. Yet “it does
not solve all problems.”
Fed policy makers have tried to spur growth by holding the
target for the overnight lending rate between banks near zero
since December 2008, and by expanding the central bank’s balance
sheet to more than $2.8 trillion.
Three Dissenters
Fisher was one of three regional bank presidents to dissent
at the Fed’s most recent meeting this month, posing the most
opposition on the FOMC in almost 19 years. The Dallas Fed head
joined Charles Plosser of Philadelphia and Narayana Kocherlakota
from Minneapolis in preferring to maintain a commitment to keep
rates low for an unspecified “extended period.”
Hoenig, who has led the Kansas City Fed since 1991, said he
would probably oppose the idea of the Fed taking further action
to stimulate the economy. He said he still continues to support
the central bank’s dual mandate for achieving price stability
and full employment.
“The mandate is quite fine,” Hoenig said. “We need to
follow the mandate.”
The issue is that “we do have a lot of debt in this
country, we need to work it off, and that will take time,” he
said. “Not having a solution to fiscal policy and having an
environment where businesses are unsure of what the future will
hold has its own constraining effects on the economy.”
“One of the important issues for the U.S. economy today is
the debt load” being carried by U.S. consumers, state
governments and federal authorities, Hoenig said in a separate
interview with Bloomberg Radio.
Consumer Confidence
Claims for U.S. unemployment benefits unexpectedly rose
last week, while consumer confidence stabilized at a level near
an all-time low. Stocks fell, with the Standard & Poor’s 500
Index declining 1.2 percent to 1,163.28 at 12:31 p.m. in New
York.
The Fed can use monetary policy to “perhaps nudge the
economy in the short run,” he said. Yet “whether it has a
long-term beneficial effect is of greater debate, something that
would have to be debated. I’m not sure more short-run fixes are
necessarily good for the economy.”
Failing to lift the benchmark interest rate from near-zero
levels, and failing to have a U.S. fiscal policy that takes into
consideration long-term debt and revenue issues, puts the
economy at risk, Hoenig said. “We need to be seriously thinking
about bringing those back into line.”
‘Operation Twist’
When asked whether he would support action like that of
“Operation Twist,” the 1961 initiative by the central bank and
President John F. Kennedy’s administration to spur growth by
lowering long-term rates and keeping short-term ones unchanged,
Hoenig told Bloomberg Television, “I don’t see any reason” why
it would work.
“What’s the fundamental problem?” Hoenig said. “Is the
fundamental problem a yield curve issue? Or is the fundamental
problem that the United States and world have too much debt?”
“Would Operation Twist help solve the problem?” he said.
“If the answer is yes, go for it. If the answer is no, let’s
not.”
President Thomas Hoenig said there’s a limit to how much more
the central bank can help the U.S. economy and that the focus
should now be on solving the country’s fiscal problems.
“We can’t do it all,” Hoenig, the central bank’s longest-
serving policy maker, said in an interview with Bloomberg
Television that airs today. “We have a problem in this country
with debt” and “if we don’t turn to the long run, we will be
dealing with overnight crises for as far as the eye can see.”
The regional bank chief, 64, joined colleagues like Dallas
Fed President Richard Fisher by saying monetary policy can’t be
expected to cure all that ails the economy, and shouldn’t be
used to target high unemployment. Hoenig, who doesn’t vote on
the Federal Open Market Committee this year, said it probably
isn’t “a surprise” to learn that he would have dissented
against the FOMC’s Aug. 9 decision to keep rates near zero
through at least mid-2013.
“Monetary policy is an important tool, it is a valuable
tool, but it is not an exclusive tool,” Hoenig said in the
interview from Jackson Hole, Wyoming, where the Kansas City Fed
is hosting the central bank’s annual symposium. Yet “it does
not solve all problems.”
Fed policy makers have tried to spur growth by holding the
target for the overnight lending rate between banks near zero
since December 2008, and by expanding the central bank’s balance
sheet to more than $2.8 trillion.
Three Dissenters
Fisher was one of three regional bank presidents to dissent
at the Fed’s most recent meeting this month, posing the most
opposition on the FOMC in almost 19 years. The Dallas Fed head
joined Charles Plosser of Philadelphia and Narayana Kocherlakota
from Minneapolis in preferring to maintain a commitment to keep
rates low for an unspecified “extended period.”
Hoenig, who has led the Kansas City Fed since 1991, said he
would probably oppose the idea of the Fed taking further action
to stimulate the economy. He said he still continues to support
the central bank’s dual mandate for achieving price stability
and full employment.
“The mandate is quite fine,” Hoenig said. “We need to
follow the mandate.”
The issue is that “we do have a lot of debt in this
country, we need to work it off, and that will take time,” he
said. “Not having a solution to fiscal policy and having an
environment where businesses are unsure of what the future will
hold has its own constraining effects on the economy.”
“One of the important issues for the U.S. economy today is
the debt load” being carried by U.S. consumers, state
governments and federal authorities, Hoenig said in a separate
interview with Bloomberg Radio.
Consumer Confidence
Claims for U.S. unemployment benefits unexpectedly rose
last week, while consumer confidence stabilized at a level near
an all-time low. Stocks fell, with the Standard & Poor’s 500
Index declining 1.2 percent to 1,163.28 at 12:31 p.m. in New
York.
The Fed can use monetary policy to “perhaps nudge the
economy in the short run,” he said. Yet “whether it has a
long-term beneficial effect is of greater debate, something that
would have to be debated. I’m not sure more short-run fixes are
necessarily good for the economy.”
Failing to lift the benchmark interest rate from near-zero
levels, and failing to have a U.S. fiscal policy that takes into
consideration long-term debt and revenue issues, puts the
economy at risk, Hoenig said. “We need to be seriously thinking
about bringing those back into line.”
‘Operation Twist’
When asked whether he would support action like that of
“Operation Twist,” the 1961 initiative by the central bank and
President John F. Kennedy’s administration to spur growth by
lowering long-term rates and keeping short-term ones unchanged,
Hoenig told Bloomberg Television, “I don’t see any reason” why
it would work.
“What’s the fundamental problem?” Hoenig said. “Is the
fundamental problem a yield curve issue? Or is the fundamental
problem that the United States and world have too much debt?”
“Would Operation Twist help solve the problem?” he said.
“If the answer is yes, go for it. If the answer is no, let’s
not.”
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