The chief internal critic of the Federal Reserve’s current zero-percent interest- rate policy warned Thursday the central bank is playing with fire if it doesn’t raise interest rates soon.
“If we do not learn from past mistakes, we will find ourselves repeating them yet again,” warned Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.
Hoenig pointed to periods when he believed the central bank kept rates too low for too long and created greater misery. He counted the low rates maintained in the middle years of the past decade as a prime driver of the financial-market meltdown that led to the worst recession in generations, saying that is an example of what the Fed must avoid doing again.
Hoenig has for some time been a persistent critic of the zero-percent interest- rate policy currently held by the central bank. To that end, he has dissented at each Federal Open Market Committee meeting this year. With his speech before the Bartlesville (Okla.) Federal Reserve Bank Forum — his comments Thursday came from a text prepared for the event — the official ratcheted up his campaign.
Hoenig believes an increasingly robust economic recovery means the Fed can embark on a historically modest course of rate hikes and still remain supportive of growth. Higher rates, he believes, would thwart the buildup of financial- market excesses that could threaten the recovery.
Hoenig is rather alone in his views. Most Fed officials think it will be some time before rates rise, given high unemployment, modest growth and a near lack of inflation.
