US Economy

Ex-Fed Plosser: Big rate catch up may be needed

Fed may have to catch up: Charles Plosser
Data dependent is the question and answer: Charles Plosser
Feb. jobless rate 4.9%

Despite a better-than-expected jobs report, market watchers generally don't see an aggressive path to higher interest rates, although some experts are now betting on June — or sooner.

Former Philadelphia Federal Reserve president Charles Plosser told CNBC's "Squawk Box" an interest rate hike "would be a close call" for him if he were voting at the March Fed meeting.

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"So there may be rate hikes, but maybe one or two of them might be 50 basis points, instead of 25 [basis points]," said Plosser, a monetary hawk who served 8½ years as head of the Philadelphia Fed before retiring last March.

"I think the markets need to anticipate that being data dependent means the Fed may have to catch up," Plosser added.

Heading into Friday's jobs report, expectations for additional rake hikes this year were starting to creep back as markets rebounded from a rocky start to 2016. The Fed — when it increased rates by 25 basis points in December, the first increase in more than nine years — had projected four more hikes in 2016.

The better-than-expected jobs report for February showed the headline 242,000 nonfarm payroll gain, but a slowing wage number — average hourly earnings down 0.1 percent. The unemployment rate for last month was unchanged at 4.9 percent, capping off what Labor Secretary Thomas Perez called the best two-year stretch for consumers since the late 1990s.

"What we see, not withstanding those doomsayers: American businesses are resilient," Perez told CNBC's "Squawk on the Street." "American workers are resilient. And we're continuing to move in the right direction — with undeniable unfinished business, but a lot to do, and a lot accomplished."

On CNBC's "Power Lunch," Rutgers labor economist Bill Rodgers said the growth was considerably promising, considering obstacles faced by the Obama administration.

"This administration was handed a very, very tough hand," he said. "It hasn't gotten us back to where we were at the beginning of the recession. ... But we are, in a historical sense, at higher levels."

Yet market participants, as Plosser pointed out, do not expect a Fed rate increase at the central bank's March 15-16 meeting, which will be capped by a news conference by Fed Chair Janet Yellen.

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So-called doomsayers point to the sluggish wages, a stronger dollar and slowing growth abroad. That might spur conversations at Federal Reserve meetings, but the markets have overblown those concerns, said Jan Hatzius, chief economist and head of global economics and markets research at Goldman Sachs. He expects hikes in June, September and December.

BlackRock bond guru Jeff Rosenberg told "Squawk Box" that Friday's report showed inflation remains tame and take recession worries off the table.

"This is slowing in terms of wage growth and pressures. That keeps the Fed and the pace of normalization off," he said.

The majority of the economy, fueled by consumers and service-sector workers, is doing well, as is the construction sector, said Ward McCarthy, managing director and chief financial economist at Jefferies. Still, manufacturing and mining, for instance, are burdened with the malaise that has struck overseas economies.

"Overall the U.S. economy is in pretty good shape," said McCarthy, who also predicts a June rate hike. "Where it's not in good shape it's in dire straits, and that's the biggest problem we have."

Because of this split, the jobs report may not ultimately move the needle for the Fed, said Jurrien Timmer, director of global macro at Fidelity Investments.

"I don't think it really changes anything," Timmer told "Squawk on the Street." "March is off the table. I would be surprised if June actually gets into play unless the markets start pricing that in."