THANK YOU SO MUCH.
MEANWHILE, WHITE HOUSE PRESS
SECRETARY KARINE JEAN-PIERRE
TRYING TO DOWN PLAY FEARS OF A
RECESSION YESTERDAY.
WATCH.
>> RIGHT NOW, WE DON’T SEE A
RECESSION.
RIGHT NOW.
THAT IS NOT -- WE’RE NOT IN A
RECESSION RIGHT NOW.
RIGHT NOW WE’RE IN A TRANSITION
WHERE WE ARE GOING TO GO INTO A
PLACE OF STABLE AND STEADY
GROWTH AND THAT’S GOING TO BE
OUR FOCUS.
MARIA: WE DON’T KNOW THAT FOR
SURE.
JOINING US RIGHT NOW IS FORMER
KANSAS CITY FEDERAL RESERVE
PRESIDENT AND CEO, THOMAS
HOENIG.
HE IS THE FORMER FDIC VICE
CHAIRMAN, A DISTINGUISHED SENIOR
FELLOW AT THE MERCATUS CENTER
AND YOU WERE AMONG THE VERY LONE
DISSENTERS, THE LONE DISSENTER
THROUGHOUT 2010 WHEN THE FEDERAL
RESERVE WAS SPEWING OUT ALL OF
THE EASY MONEY POLICIES THAT WE
ARE ALL PAYING FOR TODAY.
THANKS FOR BEING HERE THIS
MORNING, THOMAS.
>> THANKS FOR HAVING ME.
IT’S GOOD TO BE WITH YOU AGAIN.
GOOD MORNING.
MARIA: WHAT ARE YOUR THOUGHTS?
CAN WE ACTUALLY KNOW THAT WE’RE
NOT IN A RECESSION RIGHT NOW.
WE KNOW WE HAD A CONTRACTION IN
THE FIRST QUARTER, THE ATLANTA
FEDERAL RESERVE IS LOOKING FOR
ZERO GROWTH IF THE SECOND
QUARTER.
WE MAY BE IN A RECESSION RIGHT
NOW.
HOW DOES IT FEEL TO YOU?
>> WELL, I THINK IF WE’RE NOT IN
A RECESSION, WE ARE CERTAINLY
SLOWING TOWARDS A RECESSION, IT
FEELS LIKE AND THAT’S
UNDERSTANDABLE.
WE’VE HAD THIS VERY SIGNIFICANT
INFLATION.
WE’VE HAD WORLD CONFLICT IN
WHICH IT’S AFFECTED SUPPLIES AND
TRADE CONFLICT, NOT JUST THE
UKRAINE WAR AND THEN YOU HAVE TO
CORRECT FOR SOME VERY EXTENSIVE
FISCAL POLICIES FOLLOWING THE
PANDEMIC AND A MONETARY POLICY
EXCESS SO NOW YOU’RE TIGHTENING
LIKE A FACTOR OF SEVEN HERE IN
THE LAST THREE MONTHS IN TERMS
OF INTEREST RATES GOING FROM 25
BASIS POINTS TO 175 AND HEADING
TOWARDS ABOVE 2.
AND YOU HAVE KWAN QUANTITATIVE
TIGHTENING.
THAT’S GOING TO CREATE A GREAT
DEAL OF REDUCTION IN LIQUIDITY,
REDUCTION IN BORROWING BECAUSE
OF THE COST INCREASES WHICH WE
SEE IN THE HOME MARKET RIGHT NOW
AND THEN THAT CREATES ITS OWN
VOLATILITY AND UNCERTAINTY.
SO I’D SAY RECESSION IS A FAIR
CALL.
WHETHER WE’RE IN IT RIGHT NOW, I
DON’T KNOW.
BUT I THINK WE’RE PRETTY CLOSE.
MARIA: SO TREASURY SECRETARY
JANET YELLEN CLAIMS THAT THE FED
CAN EFFECTIVELY FIGHT INFLATION
WITHOUT RAISING UNEMPLOYMENT AND
WITHOUT TAKING US INTO
RECESSION.
BUT THOMAS, WHAT ARE YOUR
THOUGHTS ON THE REAL IMPORTANT
QUESTIONS TO ASK THIS MORNING
WHEN JAY POWELL IS UP ON CAPITOL
HILL.
YOU MENTIONED QUANTITATIVE
TIGHTENING.
THIS IS AN IMPORTANT POINT.
IT’S NOT JUST THE FACT THAT THE
FED IS RAISING INTEREST RATES
BUT IT’S ALSO UNWINDING OF THAT
$9 TRILLION BALANCE SHEET.
>> YOU KNOW, THE QUESTION THAT
I WOULD ASK CHAIRMAN POWELL IS,
WHAT IS THE FED’S PLAN GOING
FORWARD?
I MEAN, YOU CHANGE FROM 50 BASIS
POINTS TO 75.
YOU LET IT BE KNOWN A COUPLE
DAYS BEFORE, IS THAT YOUR NEW
PLAN.
WHAT IS HAPPENING WITH
QUANTITATIVE TIGHTENING.
YOU DON’T DISCUSS IT, WHAT ITS
IMPACTS ARE GOING TO BE.
I THINK THOSE ARE EXTREMELY
IMPORTANT QUESTIONS.
IF THE FED DOESN’T KNOW THE
ANSWER TO THAT, THEY AT LEAST
SHOULD BE STUDYING HOW THIS IS
GOING TO AFFECT THE ECONOMY AND
I’MI’VE NOT HEARD HIM TALK ABOUT
THAT AS MUCH AS I THINK WOULD BE
HELPFUL AND IS HE GOING TO
REALLY STICK TO THE PLAN AS
UNEMPLOYMENT RATES START TO
RISE, AND THEY WILL.
WE SEE WHERE OFFERS ARE BEING
PULLED BACK.
I READ THAT THIS MORNING.
SO WHAT IS THE FED’S -- ARE THEY
GOING TO STICK TO THE PLAN
THROUGH THICK AND THIN?
WHAT WOULD CHANGE THEIR MIND?
THOSE ARE THE KINDS OF QUESTIONS
I’D PRESS, I THINK TODAY.
MARIA: THOMAS, WE WERE IN A
PERIOD OF SLOW -- WE WERE IN A
PERIOD OF SLOWDOWN WHEN THE
FEDERAL RESERVE WAS BEGINNING
THE TIGHTENING.
I’M SORRY, THE QUANTITATIVE
EASING.
AND YOU DISSENTED AND WERE
AGAINST PUTTING ALL OF THIS FREE
MONEY AND STIMULUS OUT THERE.
WHAT DID YOU SEE AND WHAT DO YOU
THINK AT THIS POINT?
THE FEDERAL RESERVE HAS TO DO TO
REVERSE THIS SITUATION, NOW THAT
WE ARE UP AGAINST 41-YEAR HIGH INFLATION?
>> WELL, I THINK SOME DISSHOW --
ONLY DISCIPLINE IN MONETARY
POLICY IS THAT COMMITTEE.
THERE IS NO OTHER RULE BASED
SYSTEM OUT THERE.
THEY HAVE TO THINK LONGER TERM
THAN THEY HAVE BEEN.
MY POINT IS WHEN YOU EXTEND
MONEY THAT AGGRESSIVELY AS THEY
DID IN 2010, YOU CREATE
CONSEQUENCES, IF NOT PRICE
INFLATION, AND I DIDN’T ARGUE
THAT IT WOULD NECESSARILY ONLY
BE PRICE INFLATION, BUT ASSET
INFLATION, SO NOW YOU HAVE 8%
INFLATION AND I DON’T KNOW OF AN
EASY WAY, PERHAPS THEY DO, OF
BRINGING THAT INFLATION BACK
DOWN TOWARDS 2% OR LESS WITHOUT
CAUSING A RECESSION.
I MEAN, THEY WERE SO FAR BEHIND
THE CURVE AND YOU CANNOT
IMPLEMENT A PRICELESS POLICY
WHICH THEY DID WITH THE GREAT
FINANCIAL RECESSION AND NOW WITH
THE PANDEMIC AND THEN IT’S NOT
JUST THAT YOU PUT IT IN THE
CRISIS, BUT YOU MAINTAIN THAT
POLICY WELL AFTER THE CRISIS
WHICH THEY DID IN 2010 AND NOW
THEY DID AGAIN IN 2021 AND NOT
GET SOME REALLY NEGATIVE
CONSEQUENCES.
AND THAT’S NOW BEING SHOWN IN
BOTH AS A ASSET AND PRICE INFLAT
AND NOW THIS MASS ET MASSIVE TIG
WHICH I THINK WILL DISRUPT THE
ECONOMY FURTHER AND UNAVOIDABLY
SO.
SO I DON’T SEE ANY EASING OF THE
SITUATION.
I DON’T SEE A MILD SOFT LANDING
COMING OUR WAY, FRANKLY.
I MAY BE WRONG.
I HOPE I AM.
MARIA: THOMAS, I DON’T
UNDERSTAND WHY JUST A FEW WEEKS
BEFORE THEY ACTUALLY STARTED
RAISING RATES THEY WERE ACTUALLY
STILL BUYING ASSETS, EXPANDING
THE BALANCE SHEET.
I MEAN, I -- HOW IS THAT
POSSIBLE?
>> WELL, THAT’S A VERY FAIR
QUESTION TO ASK.
I THINK THAT IT WAS CLEAR THAT
THE ECONOMY WAS IN RECOVERY AND
I KNOW PANDEMIC WAS AN ISSUE AND
THEY WERE UNCERTAIN ABOUT IT.
BUT THOSE ARE -- THAT IS OUTSIDE
THE MONETARY POLICY CONTROL SO
WHEN YOU THEN DO FISCAL POLICY
AND YOU MONETIZE ALL THE
SPENDING AND YOU SEE THIS
BUILD-UP OF INFLATION AND PEOPLE
TALKING AND BEING CONCERNED
ABOUT IT AND THEN IGNORE IT
UNTIL MARCH OF 2022, I DON’T
UNDERSTAND IT AND THAT’S BECAUSE
PARTLY THERE IS NO RULE-BASED
MONETARY POLICY.
IT’S THESE INDIVIDUALS WITH
THEIR OWN BIASES, THEIR OWN
EXPERIENCE OR LACK OF EXPERIENCE
IN MAKING THESE DECISIONS AND I
THINK THAT IS WHY WE HAVE THESE
ERRORS BECAUSE YOU’RE IN THE
MOMENT AND THE HUMAN NATURE IS
TO TAKE THE SHORT RUN LOOK AT
THINGS AND, THEREFORE, YOU
MASSIVELY INCREASE THE MONEY
SUPPLY RATHER THAN SAY WAIT A
MINUTE, WHAT ABOUT TWO YEARS
FROM NOW OR THREE YEARS FROM NOW
WHAT THIS IS GOING TO LEAD TO
AND THAT’S REALLY I’LL SAY A
FLAW IN THE PROCESS OF MONETARY
POLICY AND THAT IS NOT HAVING A
LONG RUN VIEW.
MARIA: NOT HAVING A LONG RUN
VIEW AND ALSO PERHAPS GETTING
MIRED IN POLITICS.
LET’S FACE IT.
WHEN JAY POWELL WAS TELLING US
IT’S TRANSITORY, IT’S
TRANSITORY, IT’S TEMPORARY, HE
WAS ALSO LOOKING AT A
REAPPOINTMENT PERIOD THAT HE WAS
HOPING JOE BIDEN WAS GOING TO
REAPPOINT HIM TO ANOTHER TERM,
WHICH HE DID.
DID ANY OF THAT PLAY INTO THE
FACT THAT FOR A YEAR HE TOLD US
IT WAS TRANSITORY?
I MEAN, HOW DO YOU MISS THAT?
YOU KNEW IT.
>> WELL, I DON’T KNOW WHAT WAS
IN JAY POWELL’S MIND AT THE TIME
BUT CERTAINLY POLITICS DOZEN
TEARDOES ENTER INTO MONETARY PO
PRESIDENTS DON’T WANT TO SEE
INTEREST RATES RISE QUICKLY IN
MOST CIRCUMSTANCES, THE CONGRESS
DOESN’T REALLY WANT TO.
THEY ALSO WANT THE FED TO
MONETIZE THE DEBT.
IN OTHER WORDS, I CAN SPEND MY
MONEY, I BORROW IT.
THE FED KEEPS INTEREST RATES LOW
BY BRINGING THAT ONTO THEIR
BALANCE SHEET.
THOSE ARE ALL POLITICAL FACTORS
THAT GO INTO THE DELIBERATION,
KIND OF SUBROSA IF YOU WILL BUT
IT’S ALWAYS ON THEIR MIND.
CERTAINLY WAS ON MY MIND DURING
THAT PERIOD AND THOSE ARE THE
FACTORS THAT YOU HAVE TO GET
THROUGH.
AND WITHOUT A RULE-BASED SYSTEM,
THOSE THINGS ARE GOING TO
SOMETIMES DOMINATE AND THEY
CERTAINLY HAVE OVER THE LAST
DECADE AND-A-HALF.
MARIA: THOMAS, YOU’RE DOING
REALLY IMPORTANT WORK.