Preferring to move too soon rather than too late, Federal Reserve Bank of Kansas City president Thomas M. Hoenig yesterday suggested the Federal Open Market Committee "initiate sometime soon" a move toward a 1% federal funds rate target, with added rate hikes dependent on "how economic and financial conditions develop."
"I would view a move to 1% as simply a continuation of our strategy to remove measures that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008," he told an audience in New Mexico, according to prepared text of the speech released by the Fed.
Hoenig added that a 1% rate would "still represent highly accommodative policy."
He said that with the economy recovering, holding monetary rates too low for too long can "distort the allocation of resources in the economy." Low interest rates spark consumer spending rather than saving and affect the cost and allocation of capital.
