Fed’s Hoenig lays out plan to hike interest rates

June 3, 2010

WASHINGTON (MarketWatch) — Thomas Hoenig, the president of the Kansas City Federal Reserve bank, laid out on Thursday his proposed plan to take short-term interest rates from near-zero to 4.5%. In a speech in Bartlesville, Okla., Hoenig said the country pays a high cost for low interest rates, suggesting that the financial crisis stemmed from the very low interest rates of 2002-2005. Hoenig said the Fed should aim to get the federal funds target rate to 1% by the end of summer and then pause to assess the outlook. This should be followed by moving rates to 3% “reasonably quickly” and then a final stage bringing rates to 4.5%. Hoenig said the most recent economic data hint that the economy may be stronger than expected. He said inflation would likely to remain low for the next year or so, but then drift higher.

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