Thomas Hoenig: Well, I think the economy in the United States right now is continuing to grow. We have moderately good programs going in terms of the economic output. We just finished and released the Beige Book, which everyone talks about. And as you look at that across the country, I think generally we have what’s mostly described as steady moderate growth and I think that describes it well. When you look back a little bit at the data, you look at personal income growth, you look at the business earnings and where we are with government spending and so forth, I think it does bode well for the US economy as far as overall GDP growth in the 3rd quarter. Obviously the housing… especially the sub-prime elements of the housing market are the slowing part of the economy or the slowed part of the economy, but I think that that is one element of the economy, but the rest of the economy continues to do reasonably well.

SG: But Mr. Hoenig… many economists are saying that the odds have increased that the US economy can go into a recession. Have they increased enough to worry you...

TH: Well, I think the economy overall still continues to show growth and I think we will show growth in the 3rd quarter above 2 percent and I am for the year as a whole above 2 percent. We had a good second quarter… 4 percent GDP growth so I think that is really the story that’s out there and that is moderate continued growth, and are aware of the housing issue. That has not carried over to an immediate effect on the rest of the real economy and that’s what we'll continue to watch and that’s what we really have to do is just watch the data on a continuing basis.

SG: Are you saying that right now the problems in the housing sector and these mortgage market problems haven't yet spread into the broader economy... because some people feel that it already is?

TH: Well, I don't see the strong evidence that it has carried over into the broader economy. When you look at the income growth, the level of activity that we are seeing when we survey the country we find that most of the economy is doing reasonably well. We still have good export demand for our goods which is helping our manufacturing and carrying it so I don’t see that it has carried over at this point. And I think our responsibility is to watch that very carefully going forward and that’s what I am very confident that we will do. The future is an unknown… just by definition the future is an unknown… and so that’s why we do have to be diligent and watch these data as they come out over the next several weeks and months.

SG: The people I talk to on Wall Street believe that the measures that the Fed has taken so far have not worked, whether you are talking about cutting the discount rate or injecting money into the banking system and they believe that a rate cut is justified.   What are your thoughts on that?

TH: Well, I won't talk about rate cut or anything like that. I will say that what we have done so far is provide liquidity of the central banks in the United States, Europe, and elsewhere have provided liquidity into the market place, which has been very important and I think have been very helpful to address liquidity issues that were in fact out there. So I think it has been useful to do that and I think important that we did that. And that’s part of our mandate and that is to provide liquidity into the market as one element and then to look at the real economy and judge it as far as future policy goes and we won’t know on that until the time comes to make the decision. And we will watch the data going forward.

SG: As you watch the data, as you monitor the economy… what do you need to see happen in the economy that you would feel comfortable in supporting a rate cut?

TH: There is nothing… I am not going to point to things in terms of rate action. There's just no ability on my part to do that, but what I do say is there’s no one thing that you should look at or can look at. If it were that simple, anyone could do it. I think the main thing is to look at the broad economic data that come out… as we go forward the whole string of data. You have to form judgments based upon on a broad base of information and that’s really what we have to do as we go forward. And then, at the time that a decision is called for, make that decision based on the data you have at that time... the accumulation brought forward to that time and then make your decision. So there’s no way to I think have a formula that if such and such happens we would do X or Y.

SG: Speaking of data... Chairman Bernanke has says the usual monthly economic reports are old news and not as useful in this environment so what is the Fed doing differently? What data are you looking at so you can figure out what's going on?

TH: Well, I won’t speak for the Chairman or other members of the Open Market Committee but what I’m… what I think my approach is that when you look backwards right now with… in light of the changes and the turmoils in the financial markets, you want to be mindful of these events in the markets. But therefore what we’re doing, what I’m doing, is following very carefully the new data that are coming out… survey businesses around our region... and more broadly than that to see what in fact they are able to tell us about demand for their product… how they are looking at their decision making so that you have somewhat more of a perspective look on the economy. And in fact doing that I have found that most businesses are continuing to move forward and that to me is an encouraging sign and I think that is reflected importantly in the recent survey and reflected in the so-called Beige Book.

SG: Everyone I talk to wants to know when this whole financial credit crunch crisis will be over... If the financial crisis were a baseball game what inning are we in?

TH: That's a metaphor that I think’s been used before. But I don’t pretend to be able to put a time line. The thing about economics of course is that we know there are laws of supply and demand. We know how markets work in generally but the timing of that is always affected by the psychology of the consumer, the psychology of the business person and that will affect the timing. And so we just have to stay attuned, and alert, and continually watch the markets and data and survey the markets and data to be able to judge our… judge where we are in moving towards the general improvement in the economy... which I think we have right now in place. The economy is still growing as I said modestly...moderately I think over 2 percent on the quarter. We’ll see what the numbers come out to be, but that’s the process of policymaking… gathering data… analyzing it and then making assessment when the time comes...

SG: All right… Mr. Hoenig thank you so much for talking to Nightly Business Report. We really appreciate your time

TH: I appreciate yours as well. Thank you.