TRANSCRIPT

                       September 18, 2024

                          NEWS PROGRAM

                                

 THOMAS HOENIG, FORMER PRESIDENT, FEDERAL RESERVE BANK OF KANSAS
                                CITY 

                                

                                

                                

   FBN INTERVIEW WITH THOMAS HOENIG, FORMER PRESIDENT, FEDERAL
                    RESERVE BANK OF KANSAS CITY 

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     FBN INTERVIEW WITH THOMAS HOENIG, FORMER PRESIDENT, FEDERAL
     RESERVE BANK OF KANSAS CITY 

     SEPTEMBER 18, 2024

     SPEAKERS:
     THOMAS HOENIG, FORMER PRESIDENT, FEDERAL RESERVE BANK OF KANSAS
     CITY

     NEIL CAVUTO, FBN ANCHOR

NEIL CAVUTO, FOX BUSINESS ANCHOR: For those of you maybe not tuned into what is going on right now -- you have lives to live, after all -- the whole world seems to be waiting on the Federal Reserve and its decision as it wraps up a two-day meeting at around 2:00 p.m. today, likely to cut interest rates.

Again, the consensus building around a 25-basis-point cut. So we still have a ways to go. This process could be many meetings into it. Some are saying that, a year from now, we could be looking at an overnight bank lending rate in the 3.25 to 3.5 percent range, about 2 percentage points lower than where we are now.

Thomas Hoenig knows a thing or two about this, the former Kansas City Federal Reserve president kind enough to join us.

Tom, always good to have you.

THOMAS HOENIG, FORMER PRESIDENT, FEDERAL RESERVE BANK OF KANSAS

CITY: Thank you. Thanks for having me on again.

CAVUTO: No, well, I love it when we do.

Tom, and you don't have to give away Fed secrets, but you guys are always aware of the politics around and the impression around a decision, in this case so close to the election. How do you weigh that? Do you weigh that? Do you go blinders on? How do you do that?

HOENIG: Well, you try and go blinders on, of course, but the facts are the facts.

There's a lot of political pressure, not only political pressure, but, as someone just said, there's a lot of market pressure for the Fed to cut more aggressively than not cut. They're not unaware of that, and they're not immune from it.

But I think, overall, they will go with the 25-basis-point cut, but we will see. And there's many reasons for that, but we will just have to wait and see what they decide.

CAVUTO: Because, you know, what -- what are we, seven weeks ahead of the presidential election, Tom. I'm sure that if the Trump folks saw a half-point cut, they'd say, oh, they're trying to hand this election to Kamala Harris.

And in keeping with Jerome Powell's pretty gradualist approach to things, such a move, such an action, he would be very cognizant of that impression. I don't give it much credence, but I -- what do you think?

HOENIG: I think that there -- certainly, if they went 50 basis points, it would be a lot of talk about accommodating someone, Harris or whomever.

CAVUTO: Right.

HOENIG: That would get a lot of discussion.

I think, inside it, they're going to be talking about what they -- the doves on that committee were going to be pushing for 50 regardless of the election. The hawks are going to be going with 25. No one's going to go for no change.

And I think that's a big part of it. I will personally tell you that I think the -- their eye is off the ball. I mean, we talk about being behind the curve, but the facts of the matter are, if you look at the Consumer Price Index, which is what most people really do look at -- and I don't think it overstates inflation -- it's still well above 2, 2.5 year-over-year on total, over 3 percent on core.

That's -- and inflation hurts the lower 50 percent of households more than it does the top 50 percent, and labor is going to be hurt by that. And I think that's what they ought to be thinking about, and not, how do we stimulate Wall Street's stock market or how are we going to impact just the bond market?

There's more to it than that, and that's what I'm hoping they're debating, at least inside the FOMC.

CAVUTO: So, when you saw this, I think it was a Financial Times headline yesterday talking about what the Fed was going to do, the assumption that it was going to cut, it said mission accomplished on inflation with another rate cut coming.

I thought that was a tad premature, but what about you?

HOENIG: I thought it was -- I don't know what to describe it other than irresponsible, because inflation is not conquered. It's still above 2 percent

And, remember, 2 percent is not price stability; 2 percent is accepting a devaluation of your currency over time that's pretty significant. So, to say that 3 -- over 3 percent core or over 2.5 percent CPI is a victory lap is, I think, nonsense.

CAVUTO: You know, Tom, I'd be curious. I always seem to want to get back at that Fed table and what you guys think about when you gather.

And I wonder. The whole world is watching the Fed, but the fact of the matter is, other big central banks have already cut rates, some of them a few times, United Kingdom, Eurozone, Canada. Others are kind of waiting to see what we do.

But when you know that's the case, and others, let's say in a cycle either starting up or down, in this case down, on rates, what other big central banks are doing, do you pay attention to that? You certainly are aware they're paying attention to you.

HOENIG: Well, certainly, you do pay attention to it because it affects -- your exchange values get in play, and these things are going on.

But I will tell you, honestly, as a member, I tried to push that aside and look at, well, what's right for the United States? Because following -- frankly, following Europe, I mean, they went into negative interest rates, is not a good policy, in my opinion. Following other countries is not necessarily the right path to take.

Leadership requires that you think about, what are the impacts of your actions on your economy and on other economies, but primarily on your economy, and that's what you should pay attention to.

And, right now, we have still inflation in this country. And I know everyone is afraid of a recession. Now that's the big talk.

CAVUTO: Yes.

HOENIG: And, certainly, the economy has slowed, which was the intention of raising rates.

But unemployment, they say, is really up. It's 4.2, I think. That's historically a very low full employment number. For example, unemployment claims are at a historical low level. The stock market is at record level. So you want to cut interest rates and push that up higher, push asset prices up higher? Gold is at records?

I think they need to be more deliberate in this. Yes, real interest rates are modestly restricted about 2.8 percent. Let's say steady state is 2 percent, yes. But you're still having inflation. So I would say take your quarter-point and make it very clear in the press conference that we will only move the Fed funds rate down as inflation comes down over time.

We're not going to get that far ahead of the inflation coming down. We will follow it, but we're going to be very judicious in that and we are going to be data-dependent.

CAVUTO: Who says we need to ease at all today, though, Tom, to your point?

If you think about it, market rates have already come down, I know, in large part, sort of telegraphing what it thinks the Federal Reserve will do, but, what, mortgage rates in and out of two-year lows. We are going to get to that with a real estate expert in just a second.

But you could make a credible argument to say the market has done a lot of the heavy lifting for the Fed, can't you?

HOENIG: Well, yes, you can make that case.

Look, financial conditions are fairly accommodative right now. I mean, the 10-year yield is 3.6-something.

CAVUTO: Right.

HOENIG: You have that kind of environment for it.

And I think, not only that, but asset values are still rising. People can't afford homes not because necessarily mortgage rates, because they have doubled. I mean, they have been up 50 percent in the last three, four years. So, there are things that I think inflation has done a great deal of harm to, and we ought to be more sensitive to that.

Now, I don't want a recession any more than anyone else, but I don't think we see -- I don't think one is in the offing, at least in -- any time soon. But -- and I think inflation is still stubbornly high.

CAVUTO: Very well put.

Tom, I always learn a lot, and I appreciate you coming on this Fed day.

Thomas Hoenig, the former Kansas City Federal Reserve president, great seeing you again, my friend. Please come back.

HOENIG: Thank you very much. Good to talk to you.

CAVUTO: All right.

END