Fed’s Hoenig:market tantrum likely over tightening

STEAMBOAT SPRINGS, Colo. (Reuters) – Kansas City Federal Reserve President Thomas Hoenig said on Wednesday that the Fed should pull back its ultra easy money policies by dropping its long-standing pledge to hold interest rates at rock bottom levels for an extended period, even if financial markets may not be happy about it.

“I would begin by taking away the language that is in the (Fed) statement … that we will keep interest rates extremely low for an extended period of time,” he told a business lunch. ”I would take (away) that assurance to Wall Street, to the market,” he said.

The Fed should then shrink its expanded balance sheet to bring it closer to its pre-crisis levels and then raise short term rates to near 1 percent, said Hoenig, who is not a voter on the Fed’s policy-setting panel this year.

“The first time you tell this to the market, it will throw a tantrum of tantrums,” he said. However, for the economy to remain dependent on super loose monetary policy is unstable and invites future turmoil, he added.

Hoenig has been a long-standing critic of the Fed’s easy money stance and has been advocating higher rates and tighter policy for months. (Reporting by Mark Felsenthal)