The U.S. economy will continue to grow at a modest pace as consumers and businesses pare back excessive amounts of debt, a top Federal Reserve official said.
"I don't see a double-dip recession," Thomas Hoenig, president of the Kansas City Federal Reserve Bank, said in an interview with Reuters Insider television.
The world's largest economy should expand by between 2 percent and 2.5 percent over the remainder of this year, said Hoenig, whose institution is hosting an annual conference in this mountain valley that draws central bankers and leading economists from around the world.
Hoenig played down the significance of two recent gloomy regional reports on manufacturing. Surveys by the Philadelphia and Richmond Fed banks showing weak factory activity in the U.S. Mid-Atlantic and Central Atlantic regions were taken during a period of stock market turmoil and likely reflected the uncertainty of that period, he said.
A similar survey by the Kansas City Fed covering Kansas and surrounding states released Thursday was soft, but not as dramatically so.
LOOKING TO BERNANKE
Hoenig has been a persistent critic of the Fed's ultra-loose monetary policy stance, arguing it is likely to perpetuate a cycle of boom and bust and could sow the seeds of inflation.
He is at odds with Fed Chairman Ben Bernanke and others on the central bank's monetary policy panel, which earlier this month bolstered its commitment to hold interest rates at rock bottom levels by saying it expected to keep them there for at least the next two years.
In late June, the Fed said it envisioned economic growth of between 2.7 percent to 2.9 percent for this year and 3.3 percent to 3.7 percent for 2012.
Private economists, however, have cut their expectations sharply since that projection was released, and many expect the U.S. central bank will ease monetary policy further.
The Fed lowered overnight interest rates to near zero in December 2008 and bought $2.3 trillion in bonds in a further effort to lift growth.
Financial markets will eye a speech here by Bernanke on Friday for any hints the Fed may renew bond buying or shift its holdings into longer maturities to try to put further downward pressure on medium- to long-term interest rates.
LOOKING FOR RESPECT
The Fed's aggressive monetary easing has drawn fire from U.S. politicians, including recent broadsides by Republican presidential candidates. Hoenig said that despite the political rhetoric, he believes the Fed is widely respected.
"I wish there was an overnight solution but there isn't, so they look to blame someone," he said.
Hoenig said he does not believe Congress will decide to rein in the powers of the regional Fed banks as a result of an ongoing study of the Fed system.
The study, due in October, was commissioned in conjunction with a regulatory overhaul that followed the 2007-2009 financial crisis. One of the concerns that prompted the study was that the Fed system, in which bankers sit on the boards of regional Fed banks, allows too cozy a relationship between banks and their regulators.
The Kansas City Fed chief has long warned of the dangers of allowing banks to grow so large the government would not allow them to fail for fear of a domino effect.
He said he has serious doubts about Capital One Financial Corp.'s proposed purchase of ING Groep NV's online bank ING Direct.
"I have very grave concerns about allowing these amalgamations of institutions that by their very structure are too big to fail, too interconnected to fail and I think the burden should be very heavily against that," Hoenig said.
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