The president of the Federal Reserve Bank of Kansas City once again was the lone dissenter when the Federal Open Market Committee took its most-recent vote on US monetary policy. KC Fed chief Thomas Hoenig has voted against his colleagues at the last five meetings. He continues to contend the zero interest-rate policy is no longer necessary, inhibits the committee’s ability to adjust policy when needed, and eventually may lead to inflation. In his dissent, Hoenig also said he doesn’t think reinvesting maturing mortgage-backed securities funds into Treasurys to maintain balance sheet levels helps support “a return to the committee’s policy objective.” In a townhall meeting on Friday in Lincoln, Neb., Hoenig said employing the ZIRP “during a crisis is understandable, but a zero rate after a year of recovery gives legitimacy to questions about the sustainability of the recovery and adds to uncertainty.” The federal funds rate was lowered to between 0% and 0.25% in December 2008. Hoenig said the current economic malaise was caused by low rates that contributed to excessive debt and leverage among consumers, businesses and government, and the economy now is improving and 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,” Hoenig said. “This will align more closely with the economy’s slow, deliberate recovery so that policy does not lag the recovery.” He said Friday that success for the recently passed Dodd-Frank Act “entirely depends on how well regulatory authorities implement the new requirements.” Write to Jason Philyaw.
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