Hoenig: economy picking up, Housing is not

Some highlights from Hoenig's speech yesterday.  Via KC Fed:

Kansas City Fed President Thomas Hoenig gave his view of where the U.S. economy is headed, essentially giving the economy an upgrade as many economists have done. But he acknowledges that growth is likely to be moderate and that unemployment likely is going to remain above 9 percent for some time. Since he just finished his one year rotation as a voting member of the FOMC, he chose to explain the importance of dissent within the Fed when debating monetary policy. He argues that the Fed and the public are better served when there is a willingness to dissent during periods of economic uncertainty. "


Since he faces mandatory retirement at 65, and he is 64, this will not be many more official speeches by Hoenig.

On the economy
"As we begin 2011, recent economic data indicate a firmer tone in the outlook, and I am increasingly confident that the recovery is both sustainable and likely to gain strength over the next several quarters. That said, I expect the recovery to be moderate, with real GDP growing about 3½ to 4 percent a year over the next couple years. "
On Housing
"While the consumer and business sectors of the economy are rebounding, the same cannot be said for housing. As you know, housing lost momentum after the end of the homebuyer tax credit, and house prices continue to decline. Moreover, the inventory of unsold homes is exerting downward pressure on house prices and housing activity. As the broader economy continues to grow, though, I expect that we will see a turnaround in housing this year. However, there are many issues tied to the housing crisis that could impede recovery, and much depends on how these issues are addressed in the next several months."
On employment
"Employment is the other issue that seems difficult to understand and solve. Unfortunately, while private jobs are being added to the economy, the pace of job gains is not strong enough to bring unemployment down to where we would all like."

"Even so, with the number of people out of work and the growing numbers of new job entrants, it will be some time before we see the unemployment rate well below 9 percent."
On inflation

"Given the immediate levels of slack in the economy, core inflation will remain modest in the near term. However, given the degree of monetary and fiscal stimulus in place in the economy currently, inflation should move higher over the medium and longer term, depending on what further steps are taken in these policy areas. Also, the risk of further disinflation or outright deflation is small and, with an improving economy, should only decline further in the coming months. It is also noteworthy that long-run inflation expectations even now remain above 2 percent and should exert upward pressure on inflation during the course of the recovery."
On Risks

"There are, of course, risks to the outlook. First, I am concerned about what might happen to the economy if we fail to deal successfully with our long-run fiscal challenges."

"A second concern I have is the consequences that will follow when we combine our current fiscal projections with a highly accommodative monetary policy. In essence, the Federal Open Market Committee (FOMC) has maintained an emergency monetary policy stance in a recovering economy and has continued to ease into the recovery. 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."
On role of dissent

"The regional Bank presidents fill a critical role at the Fed's policy table. They have the responsibility of representing their respective Federal Reserve Districts in providing their unique perspective on national policy issues. As dictated by the FOMC's structure, Washington and Wall Street not only participate in all discussions but have a permanent vote. Therefore, it is crucial to have independent voices at the table that regularly interact with Main Street business and community leaders in the rest of the country."

"A deliberative body does not gain credibility by concealing dissent when decision making is most difficult. In fact, credibility is sacrificed as those on the outside realize that unanimity - difficult in any environment - simply may not be a reasonable expectation when the path ahead is the most confounding."

"To suggest that public support is somehow encouraged by unanimous decisions suggests little appreciation for the public and their understanding about the challenges we face. To me, that fosters a loss of confidence that can be difficult to recover. As a result, the body becomes less able to respond to a crisis and is left more vulnerable to its critics."

Comments

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