In the first dissent at a Federal Open Market Committee meeting in about a year, one of the voting members publicly wouldn’t go along with the crowd.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wouldn’t make it unanimous today to keep short rates at zero and tell the world they will continue to stay that way for an extended period.
Good for him. Though the Fed is unlikely to move on rates at all in 2010, the emergency conditions that required them to stand at zero have dissipated, regardless of how fragile the economic recovery remains.
As I’ve previously argued, big budget deficits, a stabilizing economy, and long-term inflation fears in some parts of the market mean the Fed should at least take the cost-free step of removing the “extended period” language on the slow walk away from zero short rates.
The Fed isn’t always clear in the language employed in the statement released after FOMC meetings, but in describing Hoenig’s decision, the language was reasonably to the point.
Hoenig “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”