A post last May on ‘How the Fed Works’ showed that the Fed was devised as a decentralised central bank which has 12 regional banks that have public and private components. One of those regional banks is the Federal Reserve Bank of Kansas City of which Thomas Hoening was the President.
In his time on the Federal Open Market Committee, Hoening was very critical of the Fed’s policy of low interest rates and quantitative easing. In fact he was a lone voice when policy was put to the vote. What was his rationale for going on a different tack from his colleagues at the Fed?
* Keeping interest rates close to zero suggests that savers continue to subsidise borrowers.
* The recent increase in oil prices and the stock market has been caused by by excessively low interest rates
* Over recent decades policy makers have relied soley on monetary policy to solve crisis situations- this is unrealistic as lower interest rates ultimately lead to bubble markets.
* History shows that inflation builds slowly e.g. the 1960’s and 1970’s. Inflation is regressive in its effects as it hits hardest the lower income groups whilst those that have assets and money in the right places do quite well.
* He would like the focus of Fed policy to be on higher savings rates, low leverage, and a strong currency.
The path to higher living standards is competitiveness and higher productivity and definitely not finanacial engineering. Mark Lister – Craigs Investment Partners