The FOMC's Lone Dissenter Takes All?

Kansas City Fed President Thomas Hoenig lived up to expectations as the second coming of Jeff Lacker and dissented on a rate hike that might never happen (pffft) but beyond that, why am I even covering this? Who cares?

Some economists do but I think we've learned that they're just as clueless as everyone else.


"This is the first step toward a slightly more hawkish-sounding Fed," said Camilla Sutton at Scotia Capital.

"I think this is a little bit of culture shock for the market," said Jefferies Chief Financial Economist Ward McCarthy of Hoenig's dissent in FOMC statement. "I think this is the starting gun...dissent going forward may not be that uncommon."

"This is not an insignificant turn of a phrase and surely reflects the concern of several voting Fed members regarding building inflationary pressures," said Dan Greenhaus of Miller Tabak.

"My translation: The financial emergency that brought the fed funds rate to almost zero in Dec '08 is no longer here and thus the Fed should adapt to a different, though still difficult, economic situation," says Miller Tabak equity strategist Peter Boockvar. "[Hoenig]'s only one but at least there is some pushback to the extraordinary easy money policy that Ben [Bernanke] only seems to know. We'll see how long he's the only one."

"We don't view Hoenig's vote as an important policy signal--he is too much of an outlier," said Morgan Stanley economists.

Please, Hoenig has some showing off to do and it's the first meeting of a new voting year, someone had to slap a large pair of cojones on the conference table to set the tone as it were. *yawn*

If he's got any attention whore in him, this ought to be getting him worked into a lather as we speak (via WSJ as well):

A single voice of dissent among Federal Reserve policy makers ignited a wave of selling Wednesday of short-term U.S. interest-rate futures contracts.

By selling futures, traders raised expectations for higher short-term rates this year, and they increased their bets for an increase in the key U.S. federal-funds rate late this summer or early autumn.

The Federal Open Market Committee announced Wednesday that it would keep the short-term funds rate at a lowest-ever range of 0% to 0.25%, where it has stood since December 2008.

The Fed barely altered language from previous policy statements about the economy, but the decision was not unanimous.

Kansas City Federal Reserve Bank President Thomas Hoenig dissented. He argued that economic and financial conditions had improved enough "that the expectation of exceptionally low levels of the federal-funds rate for an extended period was no longer warranted,"

The market's reaction to Hoenig's opposition represented a shift in traders' sentiment away from short-term rates holding at very low levels. Now the less-unified Fed provided a catalyst for pricing in higher yields even though "we would argue against reading too much into this particular dissent," said analysts at Action Economics.

All I have to say about this is that I'm glad Richmond has a vote again in the same year the Mayans predicted the end of the world. That's all I'm at liberty to discuss at this time and will be in the bunker auditing my gold bars and food stores should anyone need me.

The January FOMC statement may be found via the Board of Governors here:

Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

What I wouldn't give to have been a fly on that wall, if for no other reason than to capture the dirty ass looks Bernanke was getting, even (or especially) from those who have been recently caught in public rubbing his balls.

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.