The federal funds rate cannot remain zero forever, and it should be raised “sooner rather than later” Federal Reserve Bank of Kansas City president Thomas Hoenig said yesterday.
He said a 1% rate would still be accommodative, but raising the rate to 1% from zero “can’t be done overnight.”
“I think we shouldn’t be guaranteeing the markets a zero rate for an extended period,” Hoening said in an interview on the cable business network CNBC.
“I think the crisis of a year ago has passed. We’re in recovery,” he said. “We can’t predict the future and therefore we should not be giving guarantees. I think it’ll help the market actually adjust if they know that rates can’t be at zero forever — and shouldn’t be.”
Hoeing added: “I think [rates] could be higher and the effects would be very minor if you could do it gradually. I think we should start that process sooner rather than later.”
“When you have zero rates that go on indefinitely, you are inviting future problems,” he said. “We know that zero is non-sustainable .... The market already knows that.”
