Recovery on track despite stumbles: Fed’s Hoenig

By Mark Felsenthal

KANSAS CITY, Missouri (BestGrowthStock) – A top Federal Reserve official said on Tuesday that the U.S. economic recovery is on track despite some setbacks and the central bank should take no additional actions to encourage economic growth.

“I have not seen any recoveries that are perfectly straight lined,” Kansas City Federal Reserve Bank President Thomas Hoenig told Reuters. “When you look at the long -run trend lines, I think the most likely outcome is for continued growth, and that’s what we should act on.”

Hoenig, one of the Fed’s most vigilant anti-inflation hawks, acknowledged that the U.S. economy was proving weaker than he had anticipated earlier this year. He said he has adjusted his forecast for 2010 growth down to the 2.5 percent to 3 percent range from above 3 percent.

Weak readings on consumer spending, private hiring and housing have spurred concerns in financial markets that the U.S. recovery could falter and have led traders to push back expectations for a firming of monetary policy until the middle of next year. Indeed, some economists have called for further actions to bolster growth.

To battle the deep recession, the Fed cut interest rates to near zero and pumped more than $1 trillion into the economy by buying mortgage-related assets and longer-term government debt.

After its most recent policy meeting on June 22-23, the Fed struck a cautious tone about the recovery, which it characterized lukewarmly as “proceeding.” At that meeting, the central bank renewed its promise to hold interest rates exceptionally low for an extended period.

Some Fed officials in comments since then have left the door open to the possibility the Fed could buy more assets to provide an additional boost to the flagging economy.

But Hoenig, a voter on the Fed’s interest-rate setting panel this year, said the central bank has already taken unprecedented steps and should do no more to bolster the shaky recovery.

“I’ve seen some of those who have advocated purchasing other assets — which industry do you want to favor?” he asked. “Monetary policy can’t solve every problem in the United States,” he added.

Hoenig has dissented at all four Fed meetings this year, saying guaranteeing low rates ties the Fed’s hands and risks causing financial imbalances that could turn into future problems.

Uncertainty about what will happen when tax cuts expire, whether the government will cut spending or raise taxes to address the budget deficit, and what health care and financial regulatory laws mean has kept businesses on the sidelines, Hoenig said.

Lawmakers should make clear to the public how they intend to address fiscal concerns and begin implementing complicated new legislation to help clarify the outlook, he said.

The Kansas City Fed chief renewed his call for the Fed to raise interest rates to 1 percent and then hold them there as the economy improves to avoid fueling another boom and bust cycle like the recent painful recession.

“Zero was appropriate, perhaps, during the crisis,” he said. “We are now finishing a year of positive economic growth and we have to think of the future.” <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Reuters Insider


(Reporting by Mark Felsenthal; Editing by Andrea Ricci)

Recovery on track despite stumbles: Fed’s Hoenig