Kansas City Fedhead Hoenig: Time to Tighten Fed Policy, Ramp Up Interest Rates




Speaking from Wyoming today, Kansas City Fed President Thomas Hoenig tackled the fun-filled topic of "An Economy at Risk: The Tough Decisions Ahead" (who comes up with these titles anyway? Yeesh) and even had the cojones to open his speech with an-adjusted-for-the-times winner from everyone's hero John Maynard Keynes: "In the long run, we are all dead but our children will be left to pick up the tab."

This little quip just blew out a few brain cells. Did he really say that? And if the Fed gets this, WTF ARE THEY DOING?

I digress. MarketWatch was kind enough to sum up Hoenig's thoughts thusly:

WASHINGTON (MarketWatch) -- Rising yields on long-term Treasury debt is a signal that the Federal Reserve should being raising interest rates, said Thomas Hoenig, the president of the Kansas City Federal Reserve district bank on Wednesday. The higher yields are a signal that the market is concerned with the inflationary pressure from the high federal budget deficit and "very" accommodative monetary policy, Hoenig said in a speech in Wyoming. "I suggest strongly that we need to be alert to the markets' message and begin in earnest to bring monetary policy into better balance before inflation forces get out of hand," Hoenig said. Earlier Wednesday, Fed chairman Ben Bernanke was more sanguine about the rise in bond yields.

Hoenig is relatively realistic in his assessments; a modest "recovery" likely in early 2010, sluggish results from stimulus efforts, a delicate "re-raveling" of the unraveled economic framework in the United States.

Good, at least he's not on crack like his colleague Ben Bernanke running the presses 24:7 like a dope fiend on a mission for his next rock.

Hoenig touches on "regulatory malpractice," warning that in attempting to rewrite regulation in the face of economic collapse, we must first be sure that we are rewriting the right rules. He is exactly right on this point.

He almost goes on to point to the United States as being "Too Big to Fail" just moments after discussing that same issue and the "orderly" dissolution of TBTF institutions with assistance from the markets themselves. Does he imply, then, that the United States should also look at its viability as the largest TBTF entity of them all?

All in all, it's no scorcher but we'll give Hoenig a brownie point or two for being realistic. It's certainly more than we got from Zimbabwe Ben Bernanke from Washington today.

(full speech may be found via the Kansas City Fed here)

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

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