October 22, 2010 / 3:01 AM / 9 years ago

Fed's Hoenig-must be mindful of creating bubbles

ALBUQUERQUE, N.M., Oct 21 (Reuters) - The U.S. Federal Reserve risks creating new problems if it floods the economy with cash to try to reduce the unemployment rate too quickly, Kansas City Federal Reserve Bank President Thomas Hoenig said on Thursday.

Telling a group of business leaders that he is very unhappy with the 9.6 percent jobless rate, he also warned against seeking a quick fix.

“If you try and bring it down too rapidly you are in danger of creating the next problem,” he said.

Most analysts expect the Fed to ease policy further, pumping more cash into the economy with new Treasury purchases as early as next month.

But a new round of quantitative easing, or QE2 as it has come to be known, may not be effective in spurring demand, could spark higher inflation than intended, and could hurt the Fed’s credibility, he said. (Reporting by Ann Saphir; editing by Kazunori Takada)

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