Comments from Philadelphia Fed President Charles Plosser coming now (prepared remarks - full text, here – for delivery to a bond-traders dinner). Plosser is a voting member of the Fed’s policy committee, the FOMC, this year.:
- The Federal Reserve should clearly articulate what would prompt it to tighten monetary policy
- A systematic set of rules would set out a “reaction function” that would help the public better understand when the U.S. central bank would raise rates
- His preference for dealing with forward guidance on rates is for the Federal Open Market Committee to “articulate a reaction function as best it can”
“But even if the FOMC were not prepared to choose a particular rule, it could articulate more clearly a qualitative reaction function that would serve as a baseline for future changes in policy as we exit the zero lower bound”
“It is my belief that doing so would be a more understandable form of forward guidance, less subject to misinterpretation as policy transitions from unusual times to more normal times”
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No comments on the economy or outlook from Plosser so far, though he had comments on where he expects interest rates to be earlier
NOTE: Plosser will be speaking separately to reporters following – so a heads up for potentially more headlines
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ADDED:
- “It is hard for the Federal Reserve to manage the market’s beliefs about the future path of interest rates especially when you have to convince investors that you will not behave as you have in the past”
- “Managing expectations is challenging because the Fed has not been clear about the reaction function it uses in normal times”
- “How can policymakers credibly commit to deviate from something they have never committed to in the first place?”
