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Fed President Hoenig Urges Debt Ceiling Deal

CNBC.com and wires
Thursday, 21 Jul 2011 | 10:44 AM ET
Lester Lefkowitz | Stone | Getty Images

Lawmakers in Washington need to reach a deal to raise the U.S. debt ceiling to avoid putting more pressure on the Federal Reserve to support the economy, a top official at the central bank said on Thursday.

"My view is that it's important that they come to an agreement," Thomas Hoenig, president of the Kansas City Fed, told CNBC. "It's very important that we take care of this issue so it doesn't put pressure on the central bank to enable this to go on indefinitely."

He added that "to fail to act will only create more uncertainty and that will adversely affect the economy."

Doubts on Dodd-Frank
Thomas Hoenig, President ,President and CEO, Federal Reserve Bank of Kansas City, discusses the consequences of Dodd-Frank.

He also told CNBC the federal funds rate has to slowly be raised "over a period of time" to 1 percent from the current 0 percent so it doesn't "shock the economy," and then it should move back "toward a more normal level as the economy allows."

"I don't think zero is the right policy," Hoenig said. "You can't have any type of a market, whether a commodities or a services market, that will run efficiently at a price of zero."

Reuters contributed to this report.

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