Kansas City Federal Reserve President Tom Hoenig discussed the country’s monetary policy with FOX Business Network’s Peter Barnes saying our policy is “highly accommodating” and with that “you should over time, expect inflation to rise.” Hoenig also states that he is “not in favor” of expanding on quantitative easing and that “we’ve been in recovery now for over a year and a half and I think we need to keep that in mind as we look ahead.”
Here are the key highlights from the interview, courtesy of Fox Business Network:
On whether we have an inflation problem:
“On top of December’s numbers, there is indications that inflation is rising slowly, modestly, but still rising. And with a highly accommodating monetary policy, you should, over time, expect inflation to rise depending on what the central bank does going forward with monetary policy.”
On whether quantitative easing (QE2) is working:
“Only time will tell whether it’s working. But I am, as you know, I have issues with the very highly accommodating policy not only because of the issues around longer term inflation, but I think it does encourage imbalances in economy, such as the housing bubble that we had last time and I think there are other areas now today, as I look in my part of the country, with AG land values going up fairly rapidly, other asset values going up. Those are the other things to keep in mind when you have a very accommodating monetary policy that we carry today.”
On expanding on QE2:
“I would not be in favor of that at all given the fact that our economy is recovering and we are seeing these price numbers. What other people do who are voting that’s for them to decide but I’m not encouraging that…We’ve been in recovery now for over a year and a half and I think we need to keep that in mind as we look ahead.”
On traders plans to sell their equities when QE2 ends:
“That’s their choice, I don’t predict the future. I do know eventually that if we have inflationary impulses that arise, we will have consequences for that as well. And I think it is important that the central bank let the markets know well in advance what its longer term intentions are and do that in a way that doesn’t necessarily disrupt the markets abnormally.”
On the need to focus on long term growth:
“The fact of the matter is that you have to have your long term goals of stable prices and stable long term growth as your guiding posts, not what the market will do next week.”
On the fear of traders selling their equity once QE2 ends:
“I think bond and equity traders have to know that they are responsible for their portfolios. I’m not responsible for their portfolios. And they have to make judgments accordingly. They are in the risk business. And that’s why I think letting the broad economy know, not just the bond traders and equity traders, but main street know where we are is the more important goal here and that’s what I encourage.”
On his inflation fears:
“The issue with inflation is that it’s always very small increases. It starts slowly. Perhaps as we’re seeing now and builds over time. And you have to anticipate that. That’s what monetary policy is about, long and variable lags. You need to anticipate that. And that’s why I am more cautious going forward because of my experience with inflation in the past.”
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