The Fed's rhetoric is once again under fire by Former Fed Gov. Frederic Mishkin. The economist told CNBC's "Closing Bell" that the Fed should forgo time-based guidance, as this approach disables the market from doing "the heavy lifting."
"You basically said that you're going to do something, if you don't do it — you're flip-flopping and you actually may lose credibility," Mishkin noted, adding that in the face of weaker data it doesn't help to deal with a negative shock.
The Columbia University professor said that the Fed needs to define "aggressively" what data driven monetary policies are.
"It's not good enough just to say 'if the data changes we'll do something,' why don't you describe how if the data changes that might affect what you're doing?" he said Friday.
Conversely, the committee decided to raise interest rates last fall, but many market watchers are not pricing in further rate hikes for the year. Instead, investors remain wary of the domino effect negative rates in foreign countries can have in the U.S. Mishkin considers if the U.S. central bank adopts negative rates, the effectiveness of such policy is unknown.
"They certainly over a very long period of time can't be effective," he observed. "We really don't know how important this is going to be. True, it affects one interest rate, but it may not affect the overall set of interest rates that are actually important to households and businesses in terms of their spending."