Tom Hoenig: No One Knows Where the Economy is Headed

Kansas City Federal Reserve Bank President Tom Hoenig spoke with FOX Business Network about the United States economy and fears of a double-dip recession. Hoenig said, “No one knows for sure anything, but the fact of the matter is, at least some of us have said we would have a slow but consistent growth in our economy.” He went on to say, “People talk about 2 to 3 percent.  That’s not out of the realm of reasonable.” Hoenig also discussed the Fed’s top priority being to keep inflation under control, saying, “People know that if we lose that credibility around price stability, it will be very hard to regain.”

On if we are headed for a double-dip recession:

“Well, no one knows for sure anything.  But the fact of the matter is, at least some of us have said we would have a slow but consistent growth in our economy.  And people talk about 2 to 3 percent.  That’s not out of the realm of reasonable.  And why would it be slower?  Why this slow growth and why should we be aware of that and not panic from that?  And that’s a fact that we do have, this enormous debt overhang, the American consumer.  We have to change the dynamics.  We’ve saved virtually nothing for years.  If we know that, and if we focus on that, then I think we can change the future in terms of our growth, job creation in this country.  We are a great country.  We have a market economy with a — we have a rule of law.  If we respect that and move forward, there’s no reason this country can’t continue to be the leader of the world.”

On the weakness in recent economic indicators at several other Fed banks:

“Well, consider when those surveys were taken, right during the week of the most volatile week in the financial markets (NYSE:VXX) we’ve seen in decades.  So I’m not surprised necessarily that people’s optimism was a little bit strained during that week.  Our own district survey says it’s moderated, but it hasn’t tanked.  I think that may be as realistic an outlook as any.  And, like I say, slow, steady growth, as we move forward, and that’s the most likely outcome. I think, realistically, we can expect slow growth going forward.”

On what the Fed’s top priority is:

“In the late ’90s, we had this conference here on price stability and inflation.  And there really was a strong agreement that we really did have to focus as central banks on price stability, on maintaining confidence in the central banks’ (NYSE:KBE) ability to maintain that price stability because it made such a difference in the economics for any economy.  And that has stuck.  I mean, it’s been very important.  We’ve had quantitative easing and so forth, but, still, people know that if we lose that credibility around price stability, it will be very hard to regain.  So it’s a cautionary guide for us, it’s an important guide and I think well entrenched in the psyche of commerce.”

On interest rates:

“I think zero interest rates is not where you normally would want your interest rates to be.  I can’t name a good or service that trades well at zero.  I don’t know why credit would, either, and we have to be mindful of that.”

On if he would have voted against the latest Federal Open Market Committee (FOMC) decision to keep short-term interest rates low for the next two years:

“I have eight [dissenting] votes prior to that [over keeping rates low for an extended period], so I think it’s a fairly safe assumption,”

On if he’s concerned about any short-term budget cuts that could destabilize the economy and cut short the recovery:

“It’s like anything else.  If you address it in a systematic way, and I think Bowles-Simpson, which was a commission report about a year ago was a long-term plan.  It wasn’t perfect, but it was a long-term plan that provided an opportunity.   I think we need to revisit things like that so that we can show the American people, here’s the path.  It’s not a simple path.  It’s not overnight.  It’s not a quick fix, but it’s a clear path.

On the annual central bankers conference in Jackson Hole, Wyoming:

“People can come here, in an isolated area, and it’s more information, able to have greater dialogue, both in the meetings, but outside of the meetings, for conversation.  That’s how consensus is made.  If you’re playing in the halls of Washington or the halls of New York or wherever it is and you’re in conflict, you can’t have that kind those kinds of conversations, you can’t make that kind of difference.”