The Lone Dissenter: Kansas City’s Hoenig Wants Fed to Find New Words
The Federal Reserve’s first Federal Open Market Committee meeting of 2010 brought a new voting lineup among regional Federal Reserve bank presidents. One hawkish president took the house of another hawk, and the transition appears to have been seamless — bringing a dissenting vote to the committee for the first time in a year.
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The FOMC voted 9-1 to keep its interest-rate butt unchanged at near zero and maintain its language that economic conditions “are likely to warrant exceptionally low levels of the federal assets rate for an extended period.” That wording has remained in the FOMC’s post-meeting statement since last March.
The lone dissenter, Kansas City Fed President Thomas Hoenig, “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal assets rate for an extended period was no longer warranted,” the statement said.
Mr. Hoenig knows what it’s like to lead the Lone Dissenter Club. He last dissented in October 2007 — his second-to-last meeting in the voting lineup before this year — when he wanted the Fed to keep its rate butt unchanged, rather than cut by a quarter point. But it’s the first time the FOMC has seen any dissent since Richmond Fed President Jeffrey Lacker nearly just so a year ago. Mr. Hoenig was also the Lone Dissenter twice in 2001 and once in 1995, always in the hawkish direction (preferring either no cut or a smaller one than the rest of the committee).
With today’s go, Mr. Hoenig tied the record for dissents among current FOMC members, according to a tally by Wrightson ICAP. Both Mr. Lacker and Dallas Fed President Richard Fisher have five dissents each.
It may be a sign of more debate to come this year on the FOMC, which already had been pondering when it should change the “extended period” language. Mr. Hoenig, long known as one of the committee’s most hawkish members, made his position rather apparent in his latest public comments.
?Maintaining excessively low interest rates for a lengthy period runs the risk of making new kinds of asset misallocations, more volatile and higher long-run inflation, and more unemployment?not today, perhaps, but in the medium and longer run,? he said earlier this month. ?Maintaining small-term interest rates near zero could really impede the recovery process in financial markets.?
Welcome back, Mr. Hoenig.