Hoenig’s Dissent

The Federal Reserve voted to keep rates unchanged today, but the vote came with glitch. “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,” the FOMC statement explained.

In addition, the FOMC statement has been revised to say that “the pace of economic recovery is likely to be moderate for some time” vs. the previous view that the economy is “likely to remain weak for a time.” Today’s statement also reported that “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.”

What does it all mean? Here’s a brief sampling of opinion in the hours immediately following the Fed’s announcement…

  • “…at least one of the FOMC’s 10 voting members thinks things have gotten so good that a rate increase is now within sight.” —Globe and Mail
  • “Michael Englund, the chief economist for Action Economics, says that in a vacuum, the Fed should be ready to fix the interest rate at 25 basis points by June or July. But given the dicey political climate, he expects that any decisions will likely be postponed. ‘Our call at this point is going to be after the November elections,’ he says. ‘Not at the November meeting, which is [right] after, [because that] would look excessively political, but probably at the December meeting.’ — U.S. News & World Report
  • “…the Fed ‘sees the light at the end of the tunnel for the economy,’ said Sung Won Sohn, economist at California State University. ‘Uncertainties in the economy have diminished.’ —AP
  • “‘It is far too early to drop any hints about tightening policy,'” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.” —MarketWatch.com
  • “In the first dissent at a Federal Open Market Committee meeting in about a year, one of the voting members publicly wouldn’t go along with the crowd. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wouldn’t make it unanimous today to keep short rates at zero and tell the world they will continue to stay that way for an extended period. Good for him. Though the Fed is unlikely to move on rates at all in 2010, the emergency conditions that required them to stand at zero have dissipated, regardless of how fragile the economic recovery remains.” —Dow Jones
About James Picerno 894 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

1 Comment on Hoenig’s Dissent

  1. I like Hayek and free/laisser faire banking.A central bank should make a good profit rate of return.It should only buy high yields,high risk bonds and stocks,targeted to end the risk aversion crisis since 2008.It should not hold stocks of T bonds.
    I refer to the VIX index.The S&P 500 is growing well now.3 month LIBOR/OIS spreads are back to normal.The Kansas City Financial Stress Index is back to normal.
    The US Fed should be reducing its stock of bonds.It should manage 1 month repos rates within a broad range.

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