In a speech titled “The High Cost of Exceptionally Low Rates” by the lone hawk in a school of doves and European debt problems notwithstanding, Fed Pres Hoenig reiterates his desire to raise the FF rate to 1% by the “end of summer.” He said this would still be “highly accommodative,” real rates would still be negative and he thinks the economy can handle it. He understands the difficulty of moving rates away from zero but thinks “the process should begin sooner to avoid the danger of having to over compensate later, as so often happens in policy.” He believes the recent problems in Europe and higher risk aversion related to it “will have a modest negative net effect on US economic growth in the near term” but he thinks in the US “more recent data suggest that the recovery is more broad based and self sustaining, and perhaps even stronger than anticipated.”
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