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Greg McBride

FOMC’s Hoenig notes savers “subsidizing the borrower”

By Greg McBride · Bankrate.com
Monday, May 17, 2010
Posted: 3 pm ET

I tweeted about this over the weekend, but the Saturday Wall Street Journal contained an interview with Thomas Hoenig, the President of the Kansas City Federal Reserve Bank. Perhaps you know him as the one voting member of the Federal Open Market Committee that has dissented in each of this year's three FOMC meetings.

Hoenig feels that zero and near-zero short-term interest rates are no longer warranted and that the language about keeping interest rates "exceptionally low" for an "extended period" needs to go.

The Saturday WSJ article contains several quotes from Hoenig that are familiar themes in this blog: Interest rates are currently too low, the savers have been bailing out the borrowers via low interest rates and that there are consequences (bad ones) to keeping interest rates too low for too long.

This excerpt from the WSJ article covers all three of those.

Mr. Hoenig stresses that the idea is not to make a tight policy, "but to begin to move it back to a more neutral policy." He's particularly concerned that, in the current interest rate environment, "the saver in America is in a sense subsidizing the borrower in America." That's not a good long-term environment for markets. "We need a more normal set of circumstances so we can have an extended recovery and a more stable economy in the long run."

What do you think? Are interest rates too low? Is the saver subsidizing the borrower? Let me know by entering a comment below.

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