Federal Reserve has talked itself into a corner, Charles Plosser says
Former Philadelphia Fed President Charles Plosser told FOX Business that the U.S. central bank has been overly concerned with the financial markets when considering changes to monetary policy.
“I think the Fed has talked themselves into a corner here where I think they had to deliver on a 25 basis point cut today because they will be afraid of the market reaction,” he said on "Cavuto: Coast-to-Coast” Wednesday.
The Federal Open Market Committee voted 8-2 to cut interest rates for the first time since the 2008 financial crisis. Policymakers agreed on reducing the federal funds rate by 25 basis points, or a quarter of a percentage point, a move that coincides with the Fed’s objective of acting appropriately in order to preserve the country’s longest economic expansion.
Plosser said the Fed “overreacted” to Wall Street’s tumultuous December 2018 that resulted in the central bank's early indication that a potential rate cut was in the foreseeable future.
“Policymakers in general, it’s not just the Fed, need to take a longer-term perspective on things and not react to short-term events and short-term volatility,” he said.
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The central bank’s benchmark federal funds rate influences interest rates across the economy, including the prime rate, which is used by banks to set rates for credit cards and other methods of borrowing.