Retiring Fed member Hoenig, famous for his dissent vote all of last year on expanding Fed policy and actually calling for raising rates, is laying out again his call for the dangers of current policy in a speech. What is also of interest is his accusation that the Fed is largely to blame for the credit bubble (clear as day to me and many of my readers). “In the spring of ’03 there was worldwide concern that the US economy was falling into a ‘Japanese-like’ malaise; the recovery was stalling, deflation was likely to occur and unemployment was too high.” This was despite economic growth of 3.2% annualized and global growth of 3.6%. The fed funds rate was 1 1/4% at the time. “Although most knew that such a low rate would support an expanding economy, in June ’03 it was lowered further to 1% and was left at that rate for nearly a year, as insurance. Following this action, the US and the world began an extended credit expansion and housing boom…The long term consequences of that policy are now well known.” While others are to blame too, “monetary policy cannot escape its role as a primary contributing factor.” “The fact is that extended periods of accommodative policies are almost inevitably followed by some combination of ballooning asset prices and increasing inflation.”

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “Yep, it was us, the Fed did it”

  1. Dr. Goose says:

    “I’ve said at each meeting I’ve been to,
    We should hike rates to one point and then two;
    If recession resumes
    Now there’s no wiggle room
    In this corner you’ve painted us into.”

  2. Dr. Goose says:

    Thomas Hoenig, the hawkish Fed governor,
    Says: “The Dollar has way too much dove in ‘er;
    With a null target rate,
    I doubt we’ll deflate,
    But inflation is bound to be stubborner.”