NYT: Fed Official Warns of Starting a Cycle of Boom and Bust

[steve2470]

http://www.nytimes.com/2010/08/14/business/economy/14fed.html?src=busln

WASHINGTON — In a sharply worded dissent to the Federal Reserve’s decision to help ease the supply of credit to the economy, a member of the Fed committee that sets interest rates said Friday that the recovery would take time and that the central bank risked touching off a new boom-and-bust cycle.

The member, Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented on Tuesday when the Federal Open Market Committee, which sets monetary policy, voted 9 to 1 to invest proceeds from the Fed’s mortgage-bond portfolio in longer-term Treasury debt. The decision was the bank’s clearest signal yet that its confidence in the pace of the economic recovery was waning.

“Monetary policy is a useful tool, but it cannot solve every problem faced by the United States,” Mr. Hoenig said in a town hall-style meeting in Lincoln, Neb. “In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”

Mr. Hoenig added: “I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.”

more at link above. Critiques, anyone ?

[shraby]

1. Just a note that I see he's from Kansas.