Say this for Tom Hoenig: he isn’t trying to win any popularity contests.
Hoenig (right), the Fed banker who has said at seven straight Federal Open Market Committee meetings that he believes the Fed’s current policy is a mistake, repeated Friday that he believes the Fed should raise interest rates to put the economy on a path to balanced growth.
This is not a huge surprise, as Hoenig has spent the entire year urging his colleagues on the FOMC to wean the economy off the zero-rate drip it has been on for almost two years.
Even so, you’d have to say he picked about the toughest possible crowd to make his latest pitch for a normalized rate policy: the annual conference of the National Association of Realtors.
“I realize that advocating an interest rate increase is not the best applause line at a Realtors’ conference,” said Hoenig, who is president of the Federal Reserve Bank of Kansas City. “However, I believe that moving rates modestly off of zero, where they have been since December 2008, still represents highly accommodative monetary policy. More importantly, such action is necessary if we are to ensure a more stable economy that can thereby foster a more sustainable housing market.”
Speaking of which, Hoenig wasn’t content to propose just one policy the Realtors hate. Having laid out the case for higher rates, he went on to explain why he believes the government should vastly scale back subsidies it provides to homeowners.
“Housing policy is badly flawed, and today’s budget environment requires reform,” he said Friday morning in New Orleans. “We must move toward a system with fewer subsidies and misdirected incentives.”
This is perhaps a less controversial view than his raise-rates prescription, but it is not likely to win him invitations to share gumbo at this particular event. Take this exhortation from Realtors President Vicki Cox Golder:
“In the wake of current economic conditions, some critics have questioned the value of owning a home for families and individuals, and suggested that our government rethink its support of policies and programs that encourage home ownership,” said Golder, who is an Arizona-based Realtor. “As leading advocates for home ownership and housing issues, Realtors need to reinforce just how much home ownership matters to people, to communities and to America.”
As uplifting as that sentiment is, Hoenig suggest it misses the point:
I support a policy path that returns the housing industry toward greater market discipline and greater long-run stability. This path requires a greatly reduced role for governmental intervention and public subsidies that have distorted the market over recent decades. The American public, including aspiring homeowners and those of you employed in the housing industry, might be best served, over time, by reducing or removing these subsidies as part of our national policy.
The debate, such as it is, comes at a time when the Obama administration and the Republicans who have just taken over the House of Representatives are preparing to spar over the terms of reform for the U.S. Mortgage market, notably the government’s role in financing home lending.
Standard & Poor’s said estimated Thursday it could cost $685 billion to clean up the mess created by the collapse of Fannie Mae and Freddie Mac and erect a successor company that would make long-term, fixed-rate mortgages widely available.
House Republicans have been hankering to shut down the companies, but there is the small problem that doing so without a solid plan for what comes next could lead to the collapse of the housing market and the financial sector, neither of which would exactly be supportive of a robust recovery.
Hoenig doesn’t make specific recommendations on that front but does say the government needs to get out of the business of putting itself in a position that makes everyone assume it will come to the rescue of various entities, as it infamously did with Fannie and Freddie.
“To ensure accountability, any housing subsidies that we decide to keep should be made explicit, voted on transparently and carefully targeted to the intended beneficiaries: potential homeowners most in need and for whom such support will bring success,” he said.
A housing policy that brings success. Now that’s a novel idea.