Fed's Hoenig: Keeping Rates Too Low 'Dangerous Gamble'
The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday.
The Fed took the further step of saying it would begin reinvesting cash from maturing mortgage bonds to buy more government debt. The decision reflected the Fed's concern over the slowdown in the economic recovery it helped bring about by cutting rates to near zero in December 2008 and buying nearly $1.3 trillion in mortgage-linked debt to shore up the housing market.
U.S. central bank policies weren't the only targets of [Kansas City Reserve Bank President Thomas] Hoenig's criticism. Hoenig also expressed doubt that international and domestic policies designed to prevent another financial crisis will be effective.
Internationally, the Basel Committee, which is working on new global banking standards, has agreed to establish capital-to-asset ratios for the largest global banks at levels that leave too small a margin for error, he said.
A newly created consumer bureau will bring benefits only if its resources are directed toward payday loan providers and other financial institutions that are currently underregulated, he said.
And the part of the law designed to end the need for fresh government bailouts of failed financial institutions may not work because it requires a complex set of steps that will be cumbersome to put into effect.....