Federal Reserve Bank of Philadelphia President Charles Plosser said he objected to the Federal Open Market Committee statement because the projections for liftoff on the fed funds rate remains time dependent which is "inappropriate" and limits the panel's flexibility.
In a statement released by the Fed, Plosser notes significant economic improvement this year, with inflation and unemployment moving "much closer to the FOMC's longer-term goals."
Despite the better outlook, he said, "neither the pace of the reduction in asset purchases nor its end date has been modified, nor has the time-dependent language associated with the projected liftoff of the federal funds rate been adjusted."
Specifically, it seems he objected to wording that said the current fed funds rate target will likely be maintained "for a considerable time after the asset purchase program ends."
"My views on the appropriate funds rate settings were — and continue to be — informed by Taylor-type monetary policy rules that depict the past behavior of monetary policy, which I find useful for benchmarking my policy prescriptions. With the economy having already reached my year-end 2014 forecast for inflation and unemployment, and appearing to be well on its way toward achieving my 2015 forecasts approximately a year ahead of schedule, the funds rate setting remains well behind what I consider to be appropriate given our goals.
"In addition, the economy today is very close to achieving the central tendency outcomes for 2015 reported in the December 2013 Summary of Economic Projections. Specifically, the central tendency projection for unemployment at the end of 2015 was 5.8 to 6.1 percent, and that for inflation was between 1.5 and 2.0 percent. From this perspective, we are nearly 18 months ahead of where the Committee thought we would be just seven months ago. Consistent with these projections for 2015, 14 of 17 participants indicated that the federal funds rate should be above zero, with a median value of 75 basis points. Yet the Committee's statement does not appear to reflect what was once thought to be appropriate policy based on the behavior of unemployment and inflation.
"Thus, given the clear progress we have made toward achieving our long-term goals over the past year, and the progress and momentum that appears to be building in the economy and in the broader labor market, I no longer believe that the forward guidance language in the statement is appropriate or warranted," Plosser's statement noted.
