Fed rate decision 'discomforted' market: Richard Fisher

Richard Fisher: Never seen this much confusion

Former Dallas Federal Reserve Bank President Richard Fisher said Tuesday his onetime colleagues had confused and made markets uneasy last week by failing to raise interest rates but sticking to their expectation to hike by the end of the year.

"I don't think I've seen this much confusion in my 10 years of service and [since] my retirement in March. It is really not a good signal. I think it discomforted the markets, and I hope they find a way to correct the image that's been created that they're lacking in direction, and give a better sense of where things might go," he told CNBC's "Squawk Box."

"I think it was disruptive rather than constructive for the marketplace."

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The Federal Open Market Committee announced last week it would leave its benchmark fed funds rate near zero. The central bank has not raised interest rates in more than nine years.

Fisher said he believed the Fed may now wait to hike until next year to avoid setting off another round of volatility.

"I would be careful in December because you need to give portfolio managers time to window-dress their statements before year-end, and you could create a significant amount of volatility," he said.

"Therefore, I could hear the New York desk in my own ear in December saying, 'We have to be very careful here because we don't want to have any tripwires on the volatility side.'"

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Fed Chair Janet Yellen said Thursday the central bank was holding off until it sees "some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

Fisher said he believed the Fed was making progress toward its dual mandate: maintaining full employment and controlling inflation.

He noted the consumer price index stood at 1.8 percent during the last 12 months and the trimmed mean PCE inflation rate, an alternative measure of core inflation, is running steadily at 1.6 percent on an annualized basis.

The Fed also emphasized stress in overseas markets, such as China. Concerns about the country's slowing growth has rocked equities and other assets around the world in recent weeks.

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U.S. central bankers must determine the limits of their responsibility, Fisher said, noting that many emerging markets did not take advantage of years of low interest rates to restructure their economies.

"We can't be responsible as the central bank of the United States for solving the world's problems," he said. "However, it is the central central bank of the world, and that is a special burden."