Plosser Says Guidance Not Keeping Up With Economic Growth

Federal Reserve Bank of Philadelphia President Charles Plosser said the Fed’s guidance on interest rates was not keeping up with the progress in the U.S. economy.

“The U.S. economy continues to improve more rapidly than expected,” Plosser said in a statement today. “Given this strength, I could not support the policy statement at the December 2014 meeting.”

He released the statement to explain his dissent on Dec. 17 from the Federal Open Market Committee’s decision to modify its guidance on the likely future path of short-term interest rates. Plosser was voting for the last time as an FOMC member and will retire on March 1.

The committee replaced guidance in its statement saying rates would stay near zero “for a considerable time” with language stating it would be “patient” before raising rates.

“Whether saying we will be patient or we will wait a considerable time, the language continues to stress the passage of time as a key determinant of policy,” Plosser said. “Such date-based forward guidance is problematic since policy should be determined by the data.”

He also cautioned that the committee’s flexibility with regard to policy could be hindered by the new language, which Fed Chair Janet Yellen said in a press conference following the meeting implied that the U.S. central bank would not raise rates “for at least the next couple of meetings.”

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