Hoenig Backs Warsh's Hawkish Stance on Inflation

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, has given his seal of approval to Kevin Warsh's commitment to bringing down inflation above the 2% target. In a recent speech at the Jackson Hole policy symposium, Warsh expressed concern over inflation being 'well above target' at 3.5-3.7%, and emphasized the importance of clear communication on monetary policy changes.

Hoenig agrees with Warsh's decision to drop forward guidance, which he believes gives the market an unfair advantage and undermines the Fed's credibility. He argues that forward guidance is a 'subsidy to the marketplace' and that removing it restores a level playing field for investors.

However, Hoenig emphasizes the need for clear policy communication, especially in the absence of forward guidance. He believes that the new Fed chair must explain their decisions clearly to maintain credibility with the market.

Hoenig also warns of the dangers posed by large and growing deficits, which he argues put pressure on the central bank and can lead to inflation and asset bubbles. He notes that the upward movement in the long end of the yield curve is a sign of market concerns over fiscal imbalances.