Seeing growth, Fed`s Hoenig felt duty to dissent

The Federal Reserve's most vocal internal critic on Wednesday pushed back against the US central bank's effort to control a sometimes-dissonant message, saying it is the duty of those who disagree to vote their conviction.

Thomas Hoenig, president of the Kansas City Fed and a known inflation hawk, said the US economy is recovering remarkably well given the depth of the downturn, and repeated his view that the Fed's loose monetary policy risks provoking bubbles or inflation in the future. The bank's lone dissenter, who has repeatedly and openly opposed the Fed's policy of ultra-low interest rates, not only stuck to his views but also took a jab at those at the Fed who are concerned about the divergence of view on policy. "The idea that a dissenting vote is confusing, counterproductive and generally undesirable is unhealthy," Hoenig told The Central Exchange, a women's business advocacy group. "If I had failed to express my views with my vote, I would have failed in my duty." Minutes from the Fed's December policy meeting, published on Tuesday, contained a nod to the internal effort, led by Vice Chair Janet Yellen, to review the central bank's communications guidelines for policymakers. Hoenig, who is set to retire in October and will no longer have a vote this year on the Federal Open Market Committee, sees the US economy expanding at a solid clip between 3.5% and 4% annually over the next two years. US gross domestic product expanded at a 2.6% clip in the third quarter. In November, the Fed announced it would buy an additional $600 billion in government bonds -- on top of the USD 1.7 trillion in securities it accumulated during the financial crisis -- in order to support a flagging recovery. But Hoenig reiterated his skepticism of the policy. "I believe these actions risk creating a new set of imbalances, or bubbles. Importantly, such actions as they continue are demanding the saving public and those on fixed incomes subsidize the borrowing public," Hoenig said. Way too big to fail Still, he said it would take time before the US jobless rate, currently at 9.8%, dipped well below 9%. Despite recent signs that housing, which was at the epicenter of the 2008-2009 financial crisis, is facing a new slump, Hoenig said he expects real estate to turn around this year. He said the US budget deficit, which he described as "unsustainable," raised risks for the US economic outlook. He said President Barack Obama's tax deal with Republicans would boost growth in the short term, but not without long-term risks. "The reaction of interest rates and exchange rates to unsustainable fiscal policy are not the purview of the Federal Reserve." Asked about the new Dodd-Frank financial reform legislation, Hoenig reiterated that it had failed to address the problem of firms considered too big to fail, adding that the crisis had actually boosted concentration in the financial sector. Hoenig also faced questions about a possible return to the gold standard, a fringe view advocated by some economists and politicians that would force countries to back their currencies with bullion reserves. He was surprisingly open to the idea. "The gold standard is a very legitimate monetary system," Hoenig said. "We're not going to have fewer crises necessarily. You will have a longer period of price stability or price level stability, but I don't know that you'll have lower unemployment, I don't know that you'll have fewer bank failures."