Kansas City Federal Reserve Bank president Thomas Hoenig Wednesday reiterated his preference for raising the federal funds rate to 1% from its current zero-bound, and quickly.
“You have a policy right now that is, in my opinion ... still couched in the terms of the crisis that occurred over two years ago,” said Hoenig, answering questions during a wide-ranging morning discussion at the Council on Foreign Relations. “We need to be thinking about recalibrating the policy to be in synch with the recovery.”
Hoenig went on to say that the Fed’s policy is a “little bit spiked.”
“I really want to take the punch bowl away before the room gets drunk,” he quipped.
The outspoken Fed official said he would begin reversing the process by removing the Federal Open Market Committee’s “extended period” language regarding “exceptionally low” interest rates, terminology he deems a dangerous signal to markets that risk has all but evaporated.
Hoenig said he would then “move to 1% and then hold,” thus starting the federal funds rate’s adjustment to “more normal” in a “systematic” way.
“Remember, it’s still a very accommodative policy,” he said of a target rate of 1%. “That’s why I want to get there quickly.”
“I would get off the zero,” said Hoenig, who no longer has a vote on the policy-setting FOMC and is retiring from the Fed this October. “Do you know any market ... that functions well at zero?”