Stop Blowing Bubbles

Thomas Hoenig, the hawkish Fed governor,
Says: "The Dollar has way too much dove in 'er;
With a null target rate,
I doubt we'll deflate,
But inflation is bound to be stubborner."  

Retiring Kansas City Federal Reserve Bank President Thomas Hoenig summed up his argument for tighter money in a speech at the London School of Economics yesterday.  In what may be his valedictory address, Hoenig stressed the urgent need for a transition from short-term liquidity crisis management to longer-term inflation-fighting.  As he pointed out, the Fed's overly accomodative policy in 2003 set the stage for the asset bubble that crashed five years later.  Hoenig also added his voice to those blaming "QE2" for the recent round of commodity inflation, though without really making the case for it.