Plosser Says Fed Faces Troubling Credibility Problem on Rates

  • Fed finds reasons not to act: former Philadelphia Fed chief
  • Investors see roughly 50% probability of rate move by December

Former Fed President Plosser Sees No Real Fed Strategy

The Federal Reserve is creating a credibility problem for itself, according to Charles Plosser, former president of the Federal Reserve Bank of Philadelphia.

Policy makers failed to fully explain their decision to keep their benchmark rate in a range of 0.25 percent to 0.5 percent this month and are struggling to communicate with financial markets, Plosser said in an interview on Bloomberg Television on Wednesday.

“They say they’re data-dependent but in September they couldn’t even point to any data that suggest they should stand pat,” he said in the interview with Jon Ferro, David Westin and Alix Steel. “That does damage, I think, to their credibility about them being data-dependent. It’s really troubling.”

Investors see a roughly 50 percent chance of a rate move at or before the Fed’s December meeting, pricing in federal funds futures contracts shows, after this month’s decision saw dissents by three policy makers.

Officials “have no real strategy about how they’re going to proceed, so they can’t communicate to the markets about what’s going to happen, and the markets are guessing,” Plosser said. “They’re talking like they intend to raise rates -- and there’s lots of reasons why they should raise rates and they know that -- but then they never act.”

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