Hoenig suggests raising target interest rate to 1 percent

The Federal Reserve should raise its target interest rate to 1 percent despite data showing that the nation’s economic recovery isn’t picking up pace. 

Kansas City Federal Reserve Bank President Thomas Hoenig is pushing for an increase that is “advocating a policy of shooting toward normality,” he said Wednesday in an interview on Bloomberg Radio’s “The Hays Advantage,” with Kathleen Hays.

“I am not saying raise rates to very high levels, I am saying get it off zero,” said Hoenig, who has repeatedly voted against the policy of the Federal Open Market Committee (FOMC) to hold the rate near zero for an “extended period,” possibly through 2010. 

The change wouldn’t be harmful to the economy, he said. 

The FOMC needs greater flexibility to gradually change the rate as the economy improves, he said. 

Hoenig expects the economy to expand at about a 3 percent rate this year, revised slightly downward from his “above 3 percent” forecast. 

Gross domestic product expanded at a revised downward rate of 2.7 percent in the first three months of the year. Economists have expressed concerns that growth could be stunted by a slowly expanding job market. 

Hoenig also addressed the Fed’s balance sheet, saying the central bank needs to move “as quickly as we can” to sell off more than $2 trillion in mortgage-backed securities acquired to help promote economic growth during the financial crisis.