Fed dissenter slams ultra low rate policy

[one...two...tree 2,762]

The lone dissenter on the US Federal Reserve's policy-making body lashed out Friday at its decision to keep interest rates at virtually zero percent, warning such a policy could boomerang.

The Federal Open Market Committee's decision Tuesday to maintain rates at zero to 0.25 percent, a policy adopted since December 2008, was adding to uncertainty over US economic recovery prospects, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

"As much as I want short-term improvement, I am mindful of possible longer-term consequences of zero interest rates and further easing actions," Hoenig said at a community gathering in Nebraska state.

"Zero rates during a period of modest growth are a dangerous gamble," he said.

Hoenig is the only one of the FOMC's 10 members who has at all its meetings this year voted against the decision to keep interest rates extraordinarily low for an "extended period."

"Rather than improve economic outcomes, I worry that the FOMC is inadvertently adding to 'uncertainty' by taking such actions," he argued, citing previous recessions.

The US economy began growing in the middle of last year after a brutal recession but expansion has moderated in recent months, raising the prospect of the economy contracting again in what many call a double-dip recession.

Analysts said the remarks by Hoenig, the longest-serving of the Federal Reserve's 12 district bank presidents, were an unusually scathing attack on US monetary policy by a FOMC member.

"I have to say that I have never, in nearly 20 years of watching the Fed, seen a speech quite like this from a member of the FOMC," remarked analyst Stephen Stanley of Pierpont Securities.

"Within the constraints of how Federal Reserve officials operate, I would call this a scathing critique of monetary policy now and over the last 10 years."

Hoenig said the recession that struck the US economy in December 2007 was not caused by high interest rates "but by low rates that contributed to excessive debt and leverage among consumers, businesses and government."

He said he agreed that the Federal Reserve needed to keep its policy rate accommodative but pointed out that the economy now "is improving and is growing" at a rate faster than the last two recoveries.

"We need to get off of the emergency rate of zero, move rates up slowly and deliberately. This will align more closely with the economy's slow, deliberate recovery so that policy does not lag the recovery.

"In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long."

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[mawilson 2,133]

The lone dissenter on the US Federal Reserve's policy-making body lashed out Friday at its decision to keep interest rates at virtually zero percent, warning such a policy could boomerang.

What do you think, Steve? Could it boomerang?

[Pooky 3,795]

And of course, the 1 dissenter out of 10 has to be right, because going with the 9 other opinions is bowing to mob rule. And we can't have that, can we?

[one...two...tree 2,762]

What do you think, Steve? Could it boomerang?

It's worth considering his argument.

[Obama 2012 1,714]

artificially keeping the interest rates low has done more harm to our economy than good in the grand scheme of things.

The interest rates should have started going back up, at least 2 years ago..

[mawilson 2,133]

And of course, the 1 dissenter out of 10 has to be right, because going with the 9 other opinions is bowing to mob rule. And we can't have that, can we?

Well you know what they say... the majority is always wrong, the minority is rarely right.

[Pooky 3,795]

Well you know what they say... the majority is always wrong, the minority is rarely right.

There is another saying ...

There are 3 types of accountant ... those that can count, and those that can't