Kansas City Fed's Hoenig: Current Fed monetary policy a 'dangerous gamble'

WASHINGTON (MarketWatch)
In a sharp critique of Federal Reserve policy by a sitting policy member, Thomas Hoenig said Friday that interest rates near zero were "a dangerous gamble" in a period of moderate growth.
In a speech in Lincoln, Neb., the president of the Kansas City Federal Reserve Bank warned that Fed Chairman Ben Bernanke and his allies were risking a repeat of the cycle of severe recession and unemployment.
'In trying to use monetary policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years.'
Thomas Hoenig, Kansas City Fed "A zero policy rate during a crisis is understandable, but a zero rate after a year of recovery gives legitimacy to questions about the sustainability of the recovery and adds to uncertainty," Hoenig said.
"Monetary policy ... cannot solve every problem faced by the United States today.
In trying to use monetary policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long," he warned.
Hoenig has dissented at every Fed policy meeting this year, including at the latest meeting Tuesday, where the Fed decided to add more stimulus to the economy by purchasing long-term Treasurys to keep its balance sheet stable.
"There may be ways to accelerate GDP growth, but, in my view, highly expansionary monetary policy is not a good option," he said.
Reuters Kansas City Fed President Thomas Hoenig. Hoenig wants the Fed to commit to a slow and gradual increase in the target federal funds rate. 
In an interesting twist, Hoenig has now found himself among the most bullish officials about the economic outlook. He argued Friday that the economic news was not as bad as reported in the media and described by Wall Street experts.
"While monthly data may be mixed, the trend data are consistently positive," Hoenig said.
Job growth may be less than hoped for but is positive nonetheless, he said.
"While we are not where we want to be, the economy is recovering, and, barring specific shocks and bad policy, it should continue to grow over the next several quarters," Hoenig said.
The markets had an interest in downplaying the strength of the recovery, he said. "Of course the market wants zero rates to continue indefinitely: They are earning a guaranteed return on free money from the Fed by lending it back to the government through securities purchases. "We would all like to see a stronger recovery, but slow growth is not a decline in growth, and we should not react hastily," he said.
The current recovery is stronger than the last two, he said. Hoenig dismissed fears of Japanese-style deflation. "I find no evidence that deflation is the most serious threat to the recovery today," he said