Fed's Plosser Rips Central Bank's Forward Guidance Policy

NEW YORK (TheStreet) -- Philadelphia Fed President Charles Plosser on Friday ripped into the Federal Reserve's communication policy, arguing that the central bank's thresholds implemented for forward guidance have lost their meaning.

As part of its unprecedented monetary policy following the 2008 financial crisis, the Federal Open Market Committee told market participants that it would keep the federal funds rate at historically low levels near zero at least until the unemployment rate dipped below 6.5%.

Investors are pondering the Fed's next step as the unemployment rate sits at 6.6% and edges near that threshold, but Fed Chairwoman Janet Yellen repeated on Thursday in testimony to the Senate Banking Committee that the central bank would refrain from raising interest rates even as unemployment drops well below 6.5%. She even went as far as to say that Fed would consider changing these objectives.

It is this new wrinkle in monetary policy that triggered Plosser's comments Friday at the U.S. Monetary Policy Forum hosted annually by the Chicago Booth School of Business in New York.

"Given that we are still easing policy by buying assets, it is pretty clear that even though the threshold will soon come and go, the Committee is unlikely to contemplate raising rates as long as it is buying assets," Plosser said in prepared comments. "Therefore, in my view, the threshold has already lost its meaning as a guidepost."

Plosser made his comments on a panel with Chicago Fed President Charles Evans, who delivered less critical opinions of the Fed's communication.

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