Fed’s Plosser Surprised by Market Reaction to FOMC Statement

Philadelphia Fed President Charles Plosser told CNBC on Tuesday he found the market’s reaction the last week’s Fed statement surprising and that the Fed did not change its position on interest rates.

A noted hawk on the Fed’s largely dovish board, Plosser said he believes interest rates should hit 3 percent by the end of 2015 and 4 percent in 2016.

“It’s a little bit puzzling that the market would react the way it did,” Plosser said on CNBC’s “Squawk Box.” “I don’t think the Fed changed its position. In fact, it tried to say very explicitly in its statement that we believe forward guidance or the expectations have not changed as far as we’re concerned.”

Yellen later clarified her comments on interest rates, which she said may rise six months after the Fed ends its bond-buying stimulus programs, Plosser said. In its most recent policy statement, the Fed dropped an unemployment level threshold from its guidance on interest rates, but Plosser said the bank still plans to be “data dependent” when it weighs when to raise rates.

Yellen’s comments were not a mistake, Plosser said.

Still, Plosser told CNBC it’s more productive to talk about economic conditions rather than timing. He said Yellen’s comments were in line with data and surveys that the Federal Open Market Committee used to measure the economy.

“There was a lot of evidence and a lot of surveys that suggest six months wasn’t a wildly unexpected timeframe,” Plosser said. “But it is better to get away from talking about timeframes. Talking about economic conditions is a much better way to think about it.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza