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Philly Fed's Plosser Explains Why He Dissented With The FOMC

Tyler Durden's picture




 

In an unscheduled release moments ago the Fed's Plosser just explained why he was the sole dissenter with the FOMC's announcement. Here is the punchline: "I cast a dissenting vote because I opposed retaining the statement language that reads "…it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends." I viewed such language as an inappropriate characterization of the future path of policy and so may limit the Committee's flexibility going forward."... "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."

He concludes: "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."

Poor Plosser still doesn't get that it was never about the economy but pushing the S&P to the highest possible level before letting it all go.

From the Philly Fed:

Philadelphia Fed President Plosser Gives Statement on Dissenting Vote at the Federal Open Market Committee meeting of July 29–30, 2014

The economy has improved significantly this year, and inflation and unemployment have moved much closer to the FOMC's longer-term goals. However, 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. Thus, I cast a dissenting vote because I opposed retaining the statement language that reads "…it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends." I viewed such language as an inappropriate characterization of the future path of policy and so may limit the Committee's flexibility going forward.

In December 2013, the FOMC began to taper its asset purchase program, indicating that it was not on a preset course, but that the pace depended on the performance of the economy. The Committee also indicated it was likely that it would be appropriate to maintain the current range of the federal funds rate well past the time that the unemployment rate declines below 6.5 percent. At the time this decision was made, the unemployment rate was 7.0 percent, and year-over-year PCE inflation was 1.0 percent. With the recovery appearing somewhat unsteady and with the possibility of inflation falling further, caution and patience seemed prudent.

My own assessment at that time was that the economy would gradually recover. I projected that by the fourth quarter of 2014 the unemployment rate would decline to 6.2 percent, and year-over-year PCE inflation would rise to 1.8 percent. Consistent with that view of gradual economic recovery, I believed that an appropriate monetary policy would require the funds rate to rise to 1.25 percent by year-end 2014. Moreover, I anticipated continued progress toward economic health in 2015, with the unemployment rate reaching 5.8 percent and inflation running at 2.0 percent. Consistent with these outcomes, my associated funds rate was in the neighborhood of 3.25 percent at the end of 2015.

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.

 

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Fri, 08/01/2014 - 08:09 | 5031902 Silverhog
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This guy is so clueless it's scary. 

Fri, 08/01/2014 - 08:11 | 5031913 Stackers
Stackers's picture

Silly rabbit thinks he can raise rates and the economy won't implode.

Fri, 08/01/2014 - 08:14 | 5031926 gatorengineer
gatorengineer's picture

Silly rabbit, he thinks the economy hasnt impoded already.... Fixed it for ya.

Fri, 08/01/2014 - 08:19 | 5031938 Headbanger
Headbanger's picture

Translation:

Bend the fuck over you mooks cause the Federal Reserve must raise rates now to save the  pathetic U.S. dollar from becoming the worthless global currency it's doomed to be!

And get a clue you moe-rons!  The Federal Reserve doesn't give a flying fucking shit about U.S. unemployment or inflation but only about their own survival now.

Obozo is politically useless to do anything now so why would the banksters who OWN the Federal Reserve do anything to help that shit bag now?

Fri, 08/01/2014 - 08:50 | 5032039 max2205
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Plosser should stay away from nail guns

Fri, 08/01/2014 - 08:09 | 5031904 youngman
youngman's picture

Its called changing the goal posts....and that is what they are doing....and they will more...they cant raise rates....not with 17 trillion in debt..

Fri, 08/01/2014 - 08:13 | 5031920 DeadFred
DeadFred's picture

You they they don't have an exit strategy? Who would've thought it.

Fri, 08/01/2014 - 08:15 | 5031930 gatorengineer
gatorengineer's picture

Their exit strategy is to take the 10 under 2% and unload into that environment.... In that environment that Japs, Chinese and Europeans will buy all the American paper they can carry off.

Fri, 08/01/2014 - 08:57 | 5032063 RaceToTheBottom
RaceToTheBottom's picture

He is representative of many in the MSM.  Read those anda you begin to see how far the info permeats.  ZH is reporting on a different world than the MSM.

I think it is a good way to keep sane...

Fri, 08/01/2014 - 08:10 | 5031907 Bill of Rights
Bill of Rights's picture

Knowing the history of these FED callers, I'm more inclined to think interest rates are going down further here

Fri, 08/01/2014 - 08:12 | 5031915 slaughterer
slaughterer's picture

10 Year rate will never go above 2.7% again. 

Fri, 08/01/2014 - 08:14 | 5031925 DeadFred
DeadFred's picture

The black market rate will, and sooner than you think.

Fri, 08/01/2014 - 08:12 | 5031919 orangegeek
orangegeek's picture

Follow the three month T-Bill rate

 

http://bullandbearmash.com/about/us-prime-rate/

 

Markets set the rate - Fed influences, but with POMO cutbacks, this influence is fading

Fri, 08/01/2014 - 08:18 | 5031932 gatorengineer
gatorengineer's picture

Issue is Return of Investment going forward from here, not return on investment.  Rates are going lower, much lower.

Fri, 08/01/2014 - 08:13 | 5031924 JustObserving
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Plosser has begun believing his own lies:

Since 1994 there has been no official measure than includes discouraged people who have not looked for a job for more than a year. Including all discouraged workers produces an unemployment rate that currently stands at 23.1%, almost four times the rate that the financial press reports.

What you can take away from this is the opposite of what the presstitute media would have you believe. The measured rate of unemployment can decline simply because large numbers of the unemployed become discouraged workers, cease looking for work, and cease to be counted in the U.3 and U.6 measures of the unemployment rate.

The decline in the employment-population ratio from 63% prior to the 2008 downturn to 59% today reflects the growth in discouraged workers. Indeed, the ratio has not recovered its previous level during the alleged recovery, an indication that the recovery is an illusion created by the understated measure of inflation that is used to deflate nominal GDP growth.

http://www.paulcraigroberts.org/2014/07/07/virtual-economys-phantom-job-...

 

Fri, 08/01/2014 - 08:51 | 5032047 max2205
max2205's picture

Fed strategy /mandate = JOKE

Fri, 08/01/2014 - 08:16 | 5031931 Cognitive Dissonance
Cognitive Dissonance's picture

"Poor Plosser still doesn't get that it was never about the economy but pushing the S&P to the highest possible level before letting it all go."

Useful idiot? The most effective puppets are those who BELIEVE in themseleves and their insanity.

Fri, 08/01/2014 - 08:19 | 5031937 agstacks
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Mission Accomplished?

Fri, 08/01/2014 - 08:20 | 5031940 AdvancingTime
AdvancingTime's picture

Regardless of what you name it the "Federal Reserve Nightmare" or the "Yellen conundrum", the box Ben Bernanke made when he painted both himself and the Federal Reserve in a corner remains. Bernanke has by passing the chairmanship to Yellen escaped from the QE trap but left the rest of us fully in its grasp.

With a policy of loose and cheap money  and an inflation target of just 2% the Federal Reserve  continues to please those gambling that not fighting the Fed guarantees profits.

As many Americans are forced to pay higher food, gasoline, and health insurance premiums, I wish someone would let the Fed know we have already passed their target. Any thought that inflation is not higher has come from the false illusion brought from lower payments on things like auto loans and mortgages, this is a one off and will not continue. Trouble lurks ahead. More on this subject in the article below.

 http://brucewilds.blogspot.com/2014/06/exit-strategy-from-qe-remains-elu...

Fri, 08/01/2014 - 08:23 | 5031951 Eyeroller
Eyeroller's picture

Ole Yellen is getting backed into a corner.

Either

All the good economic numbers are real, and the Fed need to raise rates, and the markets will plunge.

OR

the numbers are rigged and the Fed knows it, so they give their "won't raise rates for some time" crap, and the bubble gets bigger.  (How long can the Ponzi Munchkin justify not raising rates without admitting the numbers are rigged?)

Fri, 08/01/2014 - 08:30 | 5031970 gatorengineer
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I cried when they shot Old Yeller, I dont think I will when they shoot old Yellen....

Fri, 08/01/2014 - 08:37 | 5031985 Vincent Vega
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The market can stay irrational longer than you can stay solvent. ~Keynes

Fri, 08/01/2014 - 09:04 | 5032096 LawsofPhysics
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Energy becoming expensive?  < shocker > you don't do shit without calories to burn.

Fri, 08/01/2014 - 09:12 | 5032121 andyupnorth
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Yay! Central planning works!

Fri, 08/01/2014 - 12:34 | 5033259 aleph_0
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Better known as 3 variables + 1000 hail Mary's.

Do NOT follow this link or you will be banned from the site!