published : 2023-11-15

Federal Reserve Treads a Precarious Path as Recession Looms, Former Official Warns

'We Underestimated the Extent of Fiscal Stimulus,' says Hoenig

Renowned former Kansas City Federal Reserve Bank President and CEO, Thomas Hoenig, sharing his insights on the potential recession. (Photo taken with Canon EOS R6)

Renowned former Kansas City Federal Reserve Bank President and CEO, Thomas Hoenig, has raised concerns about the possibility of a recession on the horizon for the US economy.

In a recent appearance on 'Mornings with Maria,' Hoenig emphasized the Federal Reserve's delicate balancing act.

Hoenig stated, 'I think there is still a good risk of a recession and so does the Fed. And they’re walking this very fine line.'

Close-up of the Federal Reserve building, symbolizing the crucial role it plays in the US economy. (Photo taken with Nikon D850)

When questioned about the delayed effects of the Fed's 11 rate hikes, Hoenig explained, 'I think we underestimated the extent of the fiscal stimulus that went on, not just the pandemic immediately, but the CHIPS Act, the Infrastructure Act, and other factors. These things are all stimulating the economy, which gave us a very strong third quarter. And I think that's a big issue for the delay.'

Highlighting concerns about the fragility of the banking industry, Hoenig emphasized, 'I think people underestimate how fragile the banking industry is.'

Hoenig expressed that while rate cuts and a slowing economy could potentially prevent a recession, the fragility of the banking industry remains a significant factor.

An analyst closely studying graphs and charts related to inflation and economic indicators. (Photo taken with Sony Alpha A7 III)

Despite a surprisingly resilient economy and persistently high inflation, the Federal Reserve decided to hold interest rates steady for the third time this year following the Federal Open Market Committee's meeting on November 1.

Hoenig argues that rising unemployment could pose a 'real danger' in the future as the Fed continues to grapple with inflation.

Looking ahead, Hoenig speculates that a rate hike is unlikely unless there is a 'very big surprise inflation.' He stated, 'I think rates are still high enough and the economy is still fragile enough that the risk of a recession remains next year, and that will accelerate the rate cut very quickly.'