Words of wisdom from Tom Hoening, KC Fed retiring President, from The Oklahoman:
The Fed recently promised to hold interest rates at historic lows until mid-2013. Hoenig, who regularly dissented from the consensus of the Fed’s rate-setting panel when he was a voting member, said that policy reflects short-term thinking.
“Economics is about the long term and recognizing what you have and then allowing a path for the future,” Hoenig said. “When you only try and take care of the short run, you create the next path full of problems, as we learned over and over in Oklahoma.”
Hoenig believes current monetary policy has been reactive to current conditions, rather than in response to more fundamental economic problems. While policymakers claim lower interest rates will spur the economy and create more jobs, Hoenig said that doesn’t address the more basic issue of the nation’s increasing deficit between what it makes and what it consumes.
“You’re continuing to push the idea of consuming more than you produce on into the future in the name of jobs,” he said. “But what have we done by consuming more than we produce? We’ve destroyed jobs. So how is that going to work differently this next time through? Asking questions — we need to spend more time doing that before we start assigning solutions that are inappropriate.”
Keeping benchmark interest rates near zero distorts the credit market, Hoenig said, and has created greater uncertainty and confusion.
“I am concerned,” he said. “Monetary policy is a very important tool for any economy, but it has its limits. It is important to keep that in mind. When you try to do more than you’re meant to do, you can do harm. I think that is what we run the risk of right now.”
He is encouraged that three dissenting votes were registered during the most recent Open Market Committee meeting, and hopes whomever succeeds him will champion some of his unpopular stances.(…)
Dissent “is something we need more of. All you have to do is look at the economy and you’d know we need more of it. The economy today — remember this — the economy today is consensus driven. I’m not sure that consensus driven is always the right way.”
Ben Bernanke apparently encourages disagreements. Asked after his speech to the Economic Club of Minnesota about disagreements over what the Federal Reserve should do next, Chairman Bernanke joked: “When two people always agree, one is redundant.”
Seems there is less and less redundancy at the Fed… (See on this THE BERNANKE PUT? DON’T BET ON IT!)