By Steven K. Beckner
JACKSON HOLE, Wyo. (MNI) – The entertainment at this year’s Kansas
City Federal Reserve Bank symposium is to be a “horse whisperer” — an
expert equestrian trainer who can turn a wild horse into a well-mannered
beast who can be safely ridden.
And something like that is what the Fed needs to do with financial
markets and institutions, Kansas City Fed President Thomas Hoenig joshed
in welcoming remarks to symposium participants Thursday night.
Three years ago, a local rancher and “horse whisperer” regaled Fed
officials, foreign central bankers and other invitees to this
prestigious event with his horse training skills, and the event was so
popular that it is being featured again Friday night.
Hoenig used that as his point of departure for framing some of the
issues that policymakers and academic economists will be discussing over
the next two days.
This year’s theme is “Macroeconomic Challenges in the Decade
Ahead,” and lest anyone misunderstand, Hoenig emphasized that he and his
colleagues will be talking about “not today, but the decade ahead.”
Nevertheless, Hoenig’s analogy had clear relevance to anxiety in
financial markets and about where Fed monetary and regulatory policy is
headed in the current uncertain atmosphere.
The horse whisperer’s task is to take charge of an untamed horse,
“talk it through its fears” and “ride it by the end of the evening” —
to “take this wild animal, put a saddle on it and ride it safely into
the future,” he noted.
And Hoenig said that exercise presents “a real learning
opportunity” for central bankers.
“There is a lot of commonality between a horse whispererer and a
good central banker,” he said, as he put on a big cowboy hat and cast
himself in the role of “horse whisperer” to the markets.
First of all, he outlined the rules:
1. “Don’t spook the animal”;
2. “The horse whisperer is in charge, not the horse,” and
3. “Watch your body language and tone of voice” as you tame the
wild horse and “take it into a more stable environment.”
There followed an imaginary interaction between Hoenig and the wild
First of all, he told financial institutions, “It’s very important
to understand that your capital requirements are going to go up.”
“Hold on!” he soothed the imaginary steed. “We’re going to increase
your capital … get used to it.”
Next, he told the market, “We’re going to take away some very risky
proprietary trading activities.”
“Whoa!” he said as the big banks reared up.
In a final word of tough love to financial institutions, Hoenig
said, “We do not want to break your spirit. But if we can’t get on you
and ride you safely we’re going to break you up.”
Hoenig, a voting member of the Fed’s policymaking Federal Open
Market Committee, who has dissented at every FOMC meeting this year,
cracked that he has “tried this (approach) on my colleagues to no
Fed Chairman Ben Bernanke was in the audience, but
uncharacteristically he did not add his own welcoming remarks ahead of
an anxiously awaited keynote address Friday morning.
** Market News International **