Fed's Hoenig-Keeping rates low 'dangerous gamble'

The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and it must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday, Aug 13.

"To be clear, I am not advocating a tight monetary policy," Kansas City Reserve Bank President Thomas Hoenig told a town hall meeting organized by the Lincoln, Nebraska, Chamber of Commerce and U.S. Representative Jeff Fortenberry.

"I am advocating a policy that remains accommodative but slowly firms as the economy itself expands and moves toward more balance."

Hoenig has been the lone dissenter on the Fed's policy-setting panel, which on Tuesday repeated the U.S. central bank's pledge to keep interest rates extraordinarily low for an "extended period."

The Fed also said it would begin reinvesting cash from maturing mortgage bonds to buy more government debt. The decision reflected its 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.

However, Hoenig said on Friday he believes the economy "barring specific shocks and bad policy ... should continue to grow over the next several quarters."