The Fed released the minutes from the latest FOMC meeting held on December 15th and 16th showed that some tension had developed among the members including the participating presidents of the regional federal reserve banks.
Several attendees were concerned that the Fed has been too aggressive in its support of the mortgage-backed securities markets and in its purchases for US government paper. Other members believed that if this support is withdrawn too soon the housing markets and condition of the credit markets will deteriorate rapidly.
The consensus from the FOMC meeting was that the agency would stay the course and keep rates close to zero and continue its planned purchases of MBS and Treasury debt.
It only took a day after the release of the FOMC minutes for the consensus to unravel. The Federal Reserve should start tightening monetary policy “sooner rather than later,” said Kansas City Federal Reserve Bank president Thomas Hoenig on Thursday. “The Federal Reserve must curtail its emergency credit and financial market support programs, raise the federal funds rate target from zero back to a more normal level, probably between 3.5 and 4.5% and restore its balance sheet to pre-crisis size and configuration,” Hoenig said in a speech at the Central Exchange in Kansas City.
MarketWatch writes that “Hoenig will be a voting member of the Fed interest rate policy committee this year.”
And, it seems that he will spend much of 2010 in a fight with his fellow members.
Douglas A. McIntyre
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