With the crisis over and the economy recovering, policymakers need to shift their vision to see the long-term consequences of their short-term goals and begin removing policy accommodation, Federal Reserve Bank of Kansas City president Thomas Hoenig reiterated Wednesday.
Noting that it has been a difficult three years for policymakers, and that even though he sometimes argued with the methods, he supported the liquidity injections, Hoenig said, “when the crisis is past, it is incumbent upon central banks to return to another of their responsibilities: creating conditions for a sustained economic recovery that requires looking beyond short-term goals to long-term consequences.”
Detailing his statements and votes to “begin unwinding those policies put in place during the crisis,” Hoenig said, “Today, my view has not changed. The [Federal Open Market Committee] should gradually allow its $3 trillion balance sheet to shrink toward its pre-crisis level of $1 trillion. It should move the U.S. federal funds rate off of zero and toward 1 percent within a fairly short period of time. Then, after evaluating the effects of those actions, it should be prepared to move the funds rate further toward a level that could be reasonably judged as closer to normal and sustainable.”