Thursday, January 6, 2011

The Not So Great Dissenter

Kansas City Federal Reserve President Thomas Hoening delivered a speech yesterday at a meeting of the Greater Kansas City’s Business Women’s Association.

Hoening last year was a voting member of the Federal Reserve Open Market Committee (He is not this year). He is well known as being the one voting member who you could count to cast a "No" vote against Federal Reserve monetary expansion.

It is always good to see no votes, but I always felt that he did not understand monetary policy very well and that he was voting "no" for the wrong reasons.

He further proved my point in this speech to the ladies.

In the speech, he provided this as part of his forecast for 2011:
Given the immediate levels of slack in the economy, core inflation will be modest in the near term.
Wow! First, I note he forecasts using that Nixon creation, core inflation, as his benchmark. I'm sorry, but it is hard to take seriously any economist who uses an inflation measure that eliminates energy and food from its index.

Secondly, it is my view that it is not a case that price inflation will heat up down the road, but that it is doing so now. In other words, as far as inflation is concerned, Hoening really doesn't see what is already in front of him.

Remarkably, following a few short remarks about the future, the remainder of  Hoening's speech is about the value of dissent at FOMC meetings.  In other words, for him to focus on this rather academic question of dissent, it is pretty obvious he doesn't get the extremely serious ramifications of Fed policy that are likely to lead very quickly to double-digit inflation and possibly another crash of the stock market and economy. If one understood the serious nature of what was coming down the road, how could you possibly speak about anything else? Yes, he does mention the Fed creating bubbles, but I don't think he understands the impact Fed money manipulations will have across the economy, far beyond the epicenter of any bubbles.

Bottom line: When the inflation heat up becomes obvious, MSM is likely to turn to Hoening and crown him as the person who foresaw the dangers. He will most likely humbly accept the crown. Few will look back and realize that he did not foresee the immediate inflation threat and, indeed, through the Keynesian lens he uses to view the economy, he not only missed the immediate inflation but the destructive impact it will have throughout most of the economy. 

1 comment:

  1. Thanx for the history lesson! I remember a dust-up between Alice Rivlen, who relied heavily on "Core Inflation Economics" and Paul Craig Roberts, who argued vehemently against any such notion.

    The Recession of the early '80s answered that question rather decidedly. I did not realize that it was Nixon who originated the idea.

    Thanx again.