Former Fed Official Warns Money Printing Will Likely Kick Into High Gear Soon | Thomas Hoenig

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This episode is brought to you by, oops, I've got a box of Cheez-It crackers staring at me and I just wanted that irresistible cheesy crunch. Sorry, that was a total snack accident. What was I supposed to be talking about?

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**Thomas Hoenig** (1:00)
Are we going to go back to QE, open market? That's a legitimate question, and the odds are that we will. And if that happens, then we are coming very close to fiscal dominance, to where the Fed is under enormous pressure. And the way I describe it is it becomes a new mandate. So we have price stability mandate, we have maximum employment mandate, we have low long-term interest rates mandate, and now we have make sure the treasury market is liquid and functioning fully. And if that's your new mandate as the Fed, you're going to print money to buy on the margin that part of the fiscal deficit that the foreign and private sector doesn't take up so that you pay interest rates below what they otherwise would be. And that is a real risk that the Fed and that the country is going to have to face, I think, in the not too distant future.

**Adam Taggart** (2:06)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Will the Federal Reserve cut interest rates when it meets again in mid-December? Wall Street's been whipsawing the odds back and forth over the past few weeks. To address that question, plus the even larger one of who's likely to replace Fed Chair Jerome Powell when his tenure ends in the spring, we're fortunate to welcome back to the program Dr. Thomas Hoenig, former CEO of the Kansas City Fed, former voting member of the Federal Open Market Committee, a former director of the FDIC, and now a distinguished senior fellow at the Mercatus Center. Tom, thanks so much for joining us.

**Thomas Hoenig** (2:43)
Thanks for having me. It's always good to talk to you, Adam.

**Adam Taggart** (2:45)
Thank you, Tom. It's a pleasure and a privilege to have you back on the program. All right, well, look, like I said there in the intro, there's actually a lot to talk about here. So why don't we just dive right into it? Sure. Do you think the Fed is gonna cut this month? If so, by how much? And whatever you think their decision is going to be, do you think that's the right call?

**Thomas Hoenig** (3:09)
Well, to answer your question, I would first say, I suspect I'd give it better than 50-50 odds that they will cut. There's a lot of pressure on them to cut among some of the leading members of the committee, specifically Governor Waller and Governor Myron, as well as Governor Bowman. So you have three votes that are almost dead certain to cut. The discussions that went on last week are the, shall I say, some of the speeches that, say, John Williams of the New York Fed, who was a voting member, gave were very dubish in a relative sense. And so he would be a possible fourth. After that, it gets a little more difficult. Powell is, of course, owning his cards very close to his chest, but he doesn't want to be on the losing side of the vote. I think he's probably counting votes. But given the signal that Williams gave, and he and Williams and the chairman are usually pretty close in their votes alignment, that gives me a hint that the chairman would prefer to cut. So that leaves the other members. And I think if you read some of the dialogue going on or the writing is going on right now, the members like Austin Goolsbee seems to oppose the cut. The stimulus fed seems to be wanting to hold off on any cuts.
The others on the committee are Anon Jefferson, who's the vice chair, I think would stick with the chairman. And so, when you get all done with it, you could have a vote of 7-5. Now, that's unusual. That would be a very unusual vote. And if it becomes clear to the, if it is 7-5, it becomes clear to the 5, you may have one or two join it, so it's not so close. So, that's the intrigue of the FOMC this week. And I'm betting on it going towards a cut. There could be a lot of pressure coming from Treasury, a lot of pressure coming from the White House for a cut. You'd like to think you could ignore that, but people are human, and I think it would be very difficult. So, that's why I'm kind of of the view that it goes towards a cut. Now, what do I think? I'm pretty much of the mind that they should not cut, and I base that on a couple of things. Number one, the economy is doing reasonably well right now, even though the continuing, and the Fed is focused on the labor market, so the continuing claims numbers, which are showing constant increases, are a worry to those who want to have the cut, even though initial claims are staying rather steady. That means people are having to look for jobs longer. So that will worry many of the members. But I put that against the fact that still the unemployment rate is relatively low, still in the 4.1, 4.2 range.