Federal Reserve officials have created confusion with conflicting statements about the central bank’s plans for raising interest rates, one of the Fed’s top officials said Thursday.
“We probably haven’t been doing that well” in communicating, Federal Reserve Bank of New York President William Dudley said Thursday morning at an event to discuss monetary policy.
Dudley said members of the Fed have disagreed publicly in recent days about the timing of the Fed’s planned first rate hike since 2008 because of underlying disagreements about the health of the economy.
“That disagreement about will the economy be strong enough is a realistic one,” Dudley said.
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“It’s reasonable that slight differences in the forecast are going to lead to different views” about when to raise rates, he said.
For his part, he sees the Fed raising rates later this year if his forecast about the economy is correct. But he cautioned that his forecast may not be accurate, meaning that he could not give a definitive statement about whether the much-anticipated first rate hike was coming in 2015.
“It’s crazy to presume what the data is going to be,” he said.
Dudley, as president of the New York Fed, is the vice chairman of the Fed’s monetary policy committee.
Other members, including Chairwoman Janet Yellen, have suggested that rate increases are in store this year. But others have disagreed, arguing that economic weakness in China and elsewhere could threaten to choke off the U.S. recovery. Notably, two of Yellen’s colleagues on the Board of Governors, Daniel Tarullo and Lael Brainard, said this week that it would be better for the Fed to wait. It’s unusual for such disagreements between members of the board to spill out in public.
As the disagreement about monetary policy has played out in the past few weeks, some analysts have warned that the conflicting statements are confusing investors and others who look for guidance from the Fed about where interest rates are headed.
“I think it’s a little confusing, unfortunately, I think right now,” said John Taylor, a prominent monetary economist at Stanford, appearing at Thursday’s event with Dudley.
Taylor warned that the Fed can sow confusion even while members are “out there talking all the time and thinking you’re being transparent.”
Former Philadelphia Fed President Charles Plosser said Wednesday that the Fed was confusing markets by failing to state which members’ views held sway at the monetary policy committee, leaving investors to guess which officials’ comments were indicative of future policy.
The Fed’s statements are “just maddening,” Plosser said in remarks reported by MarketWatch.
In a question-and-answer session following his appearance Thursday at the Brookings Institution, Dudley downplayed the conflicting opinions among Fed members.
“People are exaggerating the level of disagreement,” he said. “I think we’re pretty much all on the same page.”
