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Powell's communication has been 'erratic,' former Fed official Plosser says

Key Points
  • In September, Powell had said there would not be any more rate cuts in 2019 nor in 2020. However, the Fed went ahead and cut rates in October.
  • "This notion of making a monetary policy decision based on some prospective decision by the administration or China or somebody else, I think it is unprecedented and not a wise way to communicate your actions," Plosser told CNBC.
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Central banks must avoid 'race to the bottom' on rates: Former Fed official

The Federal Reserve has been quite "erratic" in its message over the last few meetings, creating uncertainty for the markets and investors, a former member of the U.S. central bank told CNBC Wednesday.

Last month, Fed Chairman Jerome Powell announced a rate cut for the third time this year. However, he also signaled that there could be a pause in any further monetary policy easing. Market players were expecting more guidance on the Fed's future course of action.

The Fed's "communication has been somewhat erratic over the last three or four meetings," Charles Plosser, former president of the Federal Reserve Bank of Philadelphia told CNBC's Joumanna Bercetche Wednesday.

"It's kind (of) hard to know what the terms and conditions under which they might act in the future and I think that's problematic for the Fed and problematic for the markets and the public, not knowing under what sort of circumstances will they return to easing or reverse and raise rates again," Plosser said at the UBS European Conference.

In September, Powell had said there would not be any more rate cuts in 2019 nor in 2020. However, the Fed went ahead and cut rates in October.

One of the economic uncertainties that the Fed, along with other central banks, has cited a number of times is the trade war between the U.S. and China.

Plosser told CNBC that "this notion of making a monetary policy decision based on some prospective decision by the administration or China or somebody else, I think it is unprecedented and not a wise way to communicate your actions."

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Fed signaling it is done cutting rates for now, former official says

Meanwhile, other central banks seem to be struggling with their communication too. Peter Praet, former member of the European Central Bank, told CNBC Wednesday that "there is a sort of malaise in the central banking community."

"The malaise is not the traditional divide between the hawks and the doves. It is basically can monetary policy really do something to stimulate animal spirits and business confidence in general and the answer is doubtful and that explains a little bit the, a bit chaotic communication that you had from the central banking community," Praet said.

The European Central Bank (ECB), in September an enhanced stimulus package. The Frankfurt-based bank put forward a 10 basis point cut to the deposit rate, new lending conditions to commercial banks as well as a second round of quantitative easing, without an end date.

Praet said this announcement in September "was a bit chaotic."

"The measures were supported, but the communication after was … there was a lot of dissonance. The dissonance was not so much the traditional one, it's related to this sort of an easing feeling that monetary policy cannot really offset this sort of shocks that you have," he said.

The decision to restart purchasing government bonds sparked some division within the central bank. Minutes from the meeting revealed that ECB members were not on board with the decision.