Hoenig is back, and a few months before his retirement, has released what appears a valedictory exercise in venomous truthiness: "Today, my view has not changed. The FOMC 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." At long last, someone admits the obvious: "While some of the increase may reflect global supply and demand conditions, at least some of the increase is driven by highly accommodative monetary policies in the United States and other economies." For those terrified by the ravages of deflation: "I tracked the average growth of money and the price levels in the United States from the 19th century to the present (Chart 3). It should surprise no one that there is a striking parallel between the long-run growth of money and the growth in the price-level index. From the end of World War II alone, the price index has increased by a factor of ten. With such a track record, it is hard to accept that deflation should be the world’s dominant concern." And lastly, for those who refuse to see Bernanke's policies as genocidal (metaphorically speaking but quite literally in MENA) to the lower (and increasingly) middle classes: "Central bankers must look to the long run. If current policy remains in place, we almost certainly will stimulate the growth of asset values and inflation. This may temporarily increase GDP and employment, but in the long run, we risk instability, damaging inflation and lost jobs, which is a dear price for middle and lower income citizens to pay."
Full must read speech linkHoenig-LondonSchoolofEconomics-033011