Hoenig Says Excessive Liquidity Can Lead to ‘Very Bad Outcomes’

Kansas City Federal Reserve President Thomas Hoenig said that pumping excessive liquidity into the banking system may harm the economy, potentially causing higher unemployment.

“Monetary policy is about an environment that’s supposed to be stable,” Hoenig said yesterday at an economic forum in Albuquerque, New Mexico. “When you try to use it in a way that floods the market with liquidity, you can in fact get very bad outcomes,” including financial instability that leads to increased joblessness.