A True Leader At The Fed

From Bloomberg:

Kansas City Federal Reserve President Thomas Hoenig said that pumping excessive liquidity into the banking system may harm the economy, potentially causing higher unemployment.

Monetary policy is about an environment that’s supposed to be stable,” Hoenig said yesterday at an economic forum in Albuquerque, New Mexico. “When you try to use it in a way that floods the market with liquidity, you can in fact get very bad outcomes,” including financial instability that leads to increased joblessness.

Fed Chairman Ben S. Bernanke and other policy makers will meet in Washington on Nov. 2-3 to consider whether to stage a new round of asset purchases, or quantitative easing, to boost an economy stagnating with unemployment above 9.5 percent and inflation at levels some policy makers consider too low.

“My experience tells me that if you wait until you’re absolutely certain that everything is fine, you waited too long,” said Hoenig, the Fed’s longest-serving policy maker, who has dissented from every decision of the Federal Open Market Committee this year. The FOMC said on Sept. 21 that it’s prepared to take action “if needed” to spur growth and achieve its mandate of stable prices and full employment.

Hoenig has said he opposes further asset purchases to boost the economy and has argued that the Fed should begin taking steps to lift interest rates from near zero. The benefits of further purchases “are likely to be smaller than the costs,” he said to the National Association for Business Economics this month.

“I don’t think we’re in a liquidity trap because we are, in fact, growing and we will continue to grow unless we create another crisis,” Hoenig said in response to audience questions.

In my opinion, Thomas Hoenig is the true leader at the Fed.  He has gone against the crowd on several occasions, including his most recent comments that we could in fact create another crisis (with zero interest rates).  
A technical indicator from the bond market - a double top - hints that a crisis is on the horizon.  Another indicator that suggests we are near a turning point is a weekly chart of the S&P 500 as shown below:

Note that the index has been bouncing between the 50 day MA and the 200 day MA which has been acting as resistance.

Let us hope that the Fed acts with restraint in November, to reduce the potential of, as Thomas Hoenig says "very bad outcomes".


  1. This is very revealing Mr.Bailey


    Your thoughts on this please for the community.

  2. Thank you Bill for highlighting this important article that I encourage all readers to view. I will comment on it Wednesday, as I am tied up in meetings today.


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