Kansas City Fed's Hoenig: Fed Must Hike Fund Rate To More Normal Level Between 3.5% and 4.5%
"As we look forward in 2010, most economists expect GDP growth will
increase at between 2.5 to 3 percent, with only modest improvement in
labor markets and financial conditions. I am more optimistic. I expect
that GDP growth, at least through 2010, will exceed 3 percent."
"In the case of fiscal policy, the ballooning federal deficit must be
controlled and reduced. If not, the federal debt will soon exceed
national income. As the private sector recovers, increasing demand to
finance both public and private debt will likely place upward pressure
on interest rates. Eventually, there will be pressure put on the
Federal Reserve to keep interest rates artificially low as a means of
providing the financing. The dire consequences of such action are well
documented in history: In its worst cases, it is a recipe for hyperinflation."
"Addressing the deficit will be made all the more complicated by the
fact that many of the stimulus programs are scheduled to wind down in
2011 at the very time the Bush administration tax cuts are also
scheduled to expire. It will be an extremely abrupt shift in fiscal
policy from stimulus to restraint that will cause the economy to
"In the case of monetary policy, the challenges are no less daunting.
The Federal Reserve must curtail its emergency credit and financial
market support programs, raise the federal funds rate target from zero
back to a more normal level, probably between 3.5 and 4.5 percent, and restore its balance sheet to pre-crisis size and configuration"