Kansas City Federal Reserve President Thomas Hoenig said Thursday that the Federal Reserve should aim to raise interest rates from near-zero levels to 1 percent by the end of the summer and then assess the economic outlook before raising them further.
"The first step toward a more normal policy is to move policy rates off zero, back toward neutral," Hoenig said. "In saying this, I have no illusions about the challenges of moving away from zero."
"But in my judgment, the process should begin sooner to avoid the danger of having to over compensate later, as so often happens in policy," he added.
Speaking at the Bartlesville Federal Reserve forum in Bartlesville, Oklahoma, Hoenig said he would begin the normalization of policy by outlining a two-step process to the public.
First, he said, the Fed would continue to unwind is extraordinary policy actions and eliminate the phrase in its monetary policy statements indicating that interest rates are likely to remain at exceptionally low levels for an extended period.
He continued, "Second, with these steps taken, with the improvements in market conditions and liquidity, and with an improving outlook, the FOMC would be prepared to raise the funds rate target to 1 percent by the end of summer."
Hoenig said that keeping interest rates low for too long encourages debt buildup and proposed a plan to eventually raise interest rates to between 3.5 and 4.5 percent.
After an assessment of the economic outlook, he said that interest rates should be raised from 1 percent to above 3 percent "reasonably quickly."
"The final steps would take rates to between 3.5 percent and 4.5 percent as economic growth approaches long-run potential," Hoenig said.
Hoenig also suggested that recent economic data hint that the economy may be stronger than expected.
"Based on the current outlook consensus, it seems reasonable that the economy would be well-positioned to accept this modest increase in the funds rate," he said.
Hoenig is currently a voting member of the Fed's Federal Open Market Committee and has been notable as the only member to vote against the central bank's accommodative interest rate policy at each FOMC meeting this year.
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May 01, 2026 15:54 ET Central banks dominated the economics news flow this week with almost all major ones announcing their latest policy decisions and many boosted expectations for a rate hike in June. In other news, several countries released the preliminary data for first quarter economic growth. In the U.S., comments by Fed Chair Jerome Powell were also in focus as his term ends this month.