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Artificially high rates can crush an economy as readily as low ones can misallocate resources and fuel asset bubbles, he said.

"We can't rely on monetary policy. We can't solve the international imbalances with monetary policy, but people don't know that yet," warned Hoenig, who oversees banks in Colorado, which is part of the Fed's 10th District based in Kansas City, Mo.

The core problem is that the United States has consumed more than it has produced for 20 years running. Consumers and governments in the developed world have piled on too much debt.