Hoenig: What about zero?

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Below is a link to the speech Thomas Hoenig, president of the Reserve Bank of Kansas City, gave today in Santa Fe, NM.  The critical part of his speech was:

Under this policy course, the FOMC would initiate sometime soon the process of raising the federal funds rate target toward 1 percent. I would view a move to 1 percent as simply a continuation of our strategy to remove measure that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008. In addition, a federal funds rate of 1 percent would still represent highly accommodative policy. From this point, further adjustments of the federal funds rate would depend on how economic and financial conditions develop.

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As I have been saying, the pressure to normalize both fiscal and monetary policy will be too great to bear in the U.S. I see zero rates as a distortion that needs to end. See Niels’ piece When the Facts Change about how this creates echo bubbles.  On the other hand, fiscal stimulus, especially for job creation, is something I have advocated in the past (but have since moved away from). Irrespective of whether you think all this stimulus is a good thing, we are likely to see less of it.

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What about Zero (pdf) – Thomas Hoenig, KC Fed

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