The Fed's rebel

OTTAWA -- In Thomas Hoenig's view of the world, rock-bottom interest rates are like binge drinking. You can't avoid the hangover.

Alas, his sobering view isn't shared by his nine colleagues on the U.S. Federal Reserve's powerful monetary policy committee. They all worry that the economy is still far too fragile; that even a hint of rate hikes now would kill the housing recovery and destabilize financial markets.

And so the Kansas City Fed president has become a lonely hawk, voting consistently against the committee's determination to keep interest rates at "exceptionally low levels... for an extended period." Four times this year - in January, March, April and June - he's balked at that language.

"We've gotten through the crisis. We are not out of the woods, the economy isn't booming, but we are now in a position where we ought to be thinking about the long run," he told The Wall Street Journal recently. "That's what central banks should do."

Dissent often suggests a deeply divided Fed, split on when to move on interest rates. This isn't the case. Mr. Hoenig has simply gone "off the reservation," as analysts put it, forging an independent path because he can.

This kind of insubordination wouldn't have been tolerated under Alan Greenspan's reign at the Fed. But current chief Ben Bernanke encourages opposing views in his more open Fed.

For Mr. Hoenig, whose steadfast opposition will be on display again this week when the Fed releases minutes from its June 22-23 meeting, it's all about fairness.

"The saver in America is in a sense subsidizing the borrower in America," he argued. And why should Wall Street enjoy a near-zero rate guarantee, he wondered.

You can blame Mr. Hoenig's interest rate angst, at least in part, on his down-home Midwest roots. Now 63, he was born on the banks of the Mississippi River in tiny Fort Madison, Iowa, just as the post-war Baby Boom was getting going.

And his world radiates from there. He went to college in Kansas (Benedictine College) and Iowa (Iowa State University), before joining the Fed in Kansas City as a bank supervisor in 1973.

The 1970s were not kind to farmers, bankers and ordinary folk across the Midwest.

Low interest rates created a bubble in farm prices, commodities, oil and commercial real estate. And then it all came tumbling down.

He sees hints of the same phenomenon today, particularly in farm values and commodities prices. And he doesn't want it to happen again.

And so you can bet that when the Fed meets next in September, Mr. Hoenig will again say no to Fed Zero.