Charles Plosser: “It’s Going To Be Probably A Pretty Close Call” Regarding Raising Interest Rates Today

Former Philadelphia Federal Reserve President Charles Plosser spoke with FOX Business Network’s (FBN) Maria Bartiromo about whether the Federal Reserve’s will raise interest rates today saying, “I don’t know the answer to whether they know what they’re going to do or not, but I’m sure there’s a very lively debate.” Plosser went on to say, “it’s going to be a tough decision.  It’s going to be probably a pretty close call I think.” When asked when he thought the Federal Reserve should have raised rates Plosser said, “maybe a year ago.”

Charles Plosser: "It's Going To Be Probably A Pretty Close Call" Regarding Raising Interest Rates Today

Charles Plosser on what is going on behind the decision to raise interest rates:

“Well, I don’t know the answer to whether they know what they’re going to do or not, but I’m sure there’s a very lively debate.  They’re debating all the issues that all the news programs and financial markets are talking about.  And it’s going to be a tough decision.  It’s going to be  probably a pretty close call I think.”

Charles Plosser on when he thought the Federal Reserve should have raise interest rates:

“Maybe a year ago.  But yes, I sort of made that argument for quite some time and felt like it was time to move.  We still had crisis-style monetary policy in the midst of an economy that was going between or around 2.5 percent.  And unemployment rate was getting close to the natural rate or what might be full employment.  And it seemed to me it’s rather strange to be having a record amount of accommodation in an economy that was pretty close to the Fed’s goals and targets.”


The Fed Charles PlosserCharles Plosser on how important the international story is for the Fed decision:

“Well, it’s somewhat important but, remember, the U.S. economy is still largely a closed economy.  We don’t export hardly anything to China, almost nothing.  So the fact that China is slowing down, my goodness, they’re slowing down from 7.5 percent to maybe 6 percent, we should be so lucky.”

Charles Plosser on the labor market:

“I think if you look at, collectively, all the data about the labor market, it’s not perfect.  It never is perfect.  The question is what can monetary policy do about it?  There’s no theory or idea that I know of that says monetary policy is the right tool to use to move people from part-time employment to full-time employment, to move them back out of the labor force — being out of the labor force back in the labor force. So I think we have to be a little more restrained about what we think monetary policy can in fact accomplish.  And so far, again, this economy is doing OK.  It’s not gangbusters of course, but it’s been doing OK for quite some time.”

Charles Plosser on volatility:

“Well, I think one of the sources of volatility is the uncertainty that monetary policy is providing and the guessing.  And if you don’t act today, the Fed doesn’t act today, one of the risks they run is that volatility is going to continue.  There’s going to be now guessing will they do in it October?  Will they do it in December?  You just keep feeding the frenzy of the uncertainty, and resolving that uncertainty, at least getting the first rate hike out of the way.  Because what’s really going to be important is what happens after that.  So I think you want to be careful to undertake monetary policy in a way that’s both reassuring and beneficial, and not just decide what the markets want at any point.”

Charles Plosser on whether the Federal Reserve is factoring in market moves to their decision today:

“Well, I don’t know the answer to that obviously.  But I do know that the Fed does and always has looked at the markets; they pay attention to the markets.  But the markets are rarely the determinative factor…It’s an indicator.  It is not a goal or an objective.  It is a means to an end.  And therefore one has to look through very short run movements, which oftentimes the market is telling you about the short run.  Monetary policy works with long lags.  Years in some cases.  So what’s important is not what the markets are doing today, it’s how you think about the economy over the next year or 18 months.”

Charles Plosser on whether monetary policy and the quantitative easing program helped this recovery:

“I think of a quantitative easing in particular as very — as three different versions of quantitative easing with different objectives.  QE1 as they call it was really about a financial crisis where there was meltdown in the markets.  The Fed went in and did a lot of asset buying to help improve liquidity.  Perfectly justifiable and understandable.  I have quibbles with some of the details of it…I say that part worked.  QE2 and QE3 are different.  They were designed or intended to help unemployment, reduce unemployment, and prove the state of the economy.  I think it’s much more questionable whether those were as effective as the Fed would’ve liked or some people think.  And I think we will be debating this for the next three generations, just like we’re clearly debating the Great Depression and what caused that and what policies were good or bad.  If you think you know the answer to this, you’re probably wrong.”