What’s in a dissent? Quite a lot, potentially. Thomas Hoenig, the notoriously hawkish president of the Kansas City Federal Reserve Bank, had already disagreed at the last FOMC meeting on the reference to an “extended period” of low interest rates – saying the economy was strong enough that higher rates could be contemplated at some point sooner. Mr Hoenig disagreed again with his colleagues today, but elaborated on his reasons for doing so. It was not for fear that low rates could lead to a spike in inflation, as one might think, but rather because of concerns over a potential new asset price bubbles. “It could lead to the buildup of financial imbalances and increase the risks to longer run macroeconomic and financial stability,” the Fed said in the last line of its statement, explaining Mr Hoenig’s position.
This could open up a whole can of worms. Although certain asset price bubbles can be inflationary for the economy as a whole, there may be a debate about whether considering financial stability on its own when crafting monetary policy is consistent with the Fed’s dual mandate under law, which is to maximize employment while maintaining stable prices. Purists might argue it is not, others might argue that it is.
