Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank needs to increase interest rates to foster a more solid U.S. economy.
"I believe that moving rates modestly off of zero, where they have been since December 2008, still represents highly accommodative monetary policy," Hoenig said today in the text of remarks at a real estate conference in New Orleans. "More importantly, such action is necessary if we are to ensure a more stable economy that can thereby foster a more sustainable housing market."
The Federal Open Market Committee on Nov. 3 said it will buy an additional $600 billion of Treasuries through June, expanding record stimulus after it failed to bring down an unemployment rate stuck near a 26-year high. Hoenig this week cast his seventh straight dissent, the most at consecutive regular policy sessions since 1955.
Hoenig was concerned the "continued high level of monetary accommodation" may "destabilize the economy" by increasing long-term inflation expectations over time, the FOMC statement said.
"With regard to promoting housing through interest rate policies, I have many times publicly expressed my views about the dangers of using monetary tools and the Federal Reserve's balance sheet to pursue low interest rates and fund mortgage- backed securities," Hoenig said.
"For home financing to follow a path that is sustainable over time, the Federal Open Market Committee must begin taking steps to normalize monetary policy," he said.
Reduce Subsidies
Hoenig also said that the U.S. needs to reduce government intervention and public subsidies in housing because they have "distorted the market" and the nation can't afford to continue with such expenditures as the federal budget deficit grows.
Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the U.S. covers losses and overhauls the housing-finance system, Standard & Poor's said yesterday.
"Given the costs and market distortions these government- supported institutions brought with them, we should be confident that they should not be allowed to operate in the future as they have in the past," Hoenig said. "We must move toward a system with fewer subsidies and misdirected incentives."
To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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