Bloomberg reports that pouty pouts is sending a “landing party” to figure out how to fix the Fed. One possible solution: Thomas Hoenig. He is known as an “inflation hawk”, in part because of his serial dissents during 2011, while he was president of the KC Fed. But I don’t think that characterization is quite right. Presumably an inflation hawk wants to hit the inflation target, rather than undershoot it by even more.
No, Hoenig has an odder approach. I clearly remember having to assess this guy in real time and thinking, I wonder if he might be a Jesuit? I am not kidding. It turns out, he took his undergraduate degree at something called Benedictine College, so maybe I was not far off.
The reason I thought he might be a Jesuit is that he was very much into “natural” monetary policy. By this, I don’t mean that he was keen to estimate the Wicksellian or natural rate of interest. That whole exercise, while dubious, accepts that monetary policy, like money, is a human artifice and that humans will set it.
No, Hoenig often left the impression that there was a godly rate of interest to be found in nature and that the Fed’s job was to divine it. A zero funds rate was not just “highly expansionary” but also against God’s plan, which is apparently always to have a higher interest rate, with reasons why best left for Magisterium.
He also had a bizarrely misinformed view of the relationship between bank profitability and the yield curve, which would certainly amuse a banks analyst or banks investor:
“Of course the market wants zero rates to continue indefinitely: They are earning a guaranteed return on free money from the Fed by lending it back to the government through securities purchases.
So, naturally, this is who president of the Hair Club is thinking of to fix the Fed. I have no idea if Hoenig will make it, but the fact that his name is in play, presumably under the advice of Larry Kudlow, is pretty random. It fits into my view that on monetary policy, the new guy will be unpredictable and incoherent.
Of course, it also fits into the consensus view among the talkers (as opposed to markets) that new guy will be hard money. Personally, I find that laughable, given his background and long odds against the notion he even knows what monetary policy is. But I am imposing priors here, I concede.