Keeping rates too low a 'dangerous gamble': Hoenig

The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent US recovery, a top Federal Reserve official said on Friday."To be clear, I am not advocating a tight monetary policy," Kansas City Reserve Bank president Thomas Hoenig said in the text of a speech at the Lincoln, Nebraska, Chamber of Commerce. "I am advocating a policy that remains accommodative but slowly firms as the economy itself expands and moves toward more balance."Hoenig has been the lone dissenter on the Fed's policy-setting panel, which on Tuesday repeated the US central bank's pledge to keep interest rates extraordinarily low for an "extended period."The Fed took the further step of saying it would begin reinvesting cash from maturing mortgage bonds to buy more government debt. The decision reflected the Fed's concern over the slowdown in the economic recovery it helped bring about by cutting rates to near zero in December 2008 and buying nearly $1.3 trillion in mortgage-linked debt to shore up the housing market.However, Hoenig on Friday said he believes the economy "barring specific shocks and bad policy ... should continue to grow over the next several quarters."The Fed should raise its short-term target to 1 percent, pause to wait for the economy to adjust, and then raise it to 2% once it is clear the recovery is on a reasonable growth path, he said, repeating a proposal he has made before."I believe that zero rates during a period of modest growth are a dangerous gamble," Hoenig said on Friday.Hoenig dissented for a fifth straight meeting from the vow to keep rates low, and said he believed the economy did not need further help."We need to get off of the emergency rate of zero, move rates up slowly and deliberately," he said. "This will align more closely with the economy's slow, deliberate recovery so that policy does not lag the recovery."