This was rather surprising today. A Federal Reserve official made a comment that seemed to be contrary to comments recently made by Fed Chair Janet Yellen. It’s not uncommon to hear conflicting statements come from the Fed, after all there are 24 Federal Reserve branches and each has itsstocks higher, rates lower own hierarchy. Stocks fell rather sharply late today as the Fed comments were released. Mortgage bond on the other hand moved up nicely. What caused the commotion?

The President of the Philadelphia Fed branch, Charles Plosser, said that rate hikes might in fact come “sooner rather than later” to head off any signs of inflation. The interesting note was the reaction from stocks and bonds. Naturally stocks sold off on the news but mortgage bonds should have sold off as well but ended up 14 basis points on the 30 year Fannie coupon. Not something you would expect when the Fed announces rate hikes might come sooner rather than later.

It was a mere three or four weeks ago that Fed Chair Yellen stated that the Fed would continue to be “accommodative” to the economy and wouldn’t raise rates if it would slow down an already tepid recovery. And while the comments from Fed official Plosser indicated otherwise, Plosser was clearly talking about inflation and what would happen if inflation began knocking on the door. However, the most recent CPI number came in at just under a 2.00 percent annualized rate. Something the Fed shouldn’t worry about.

Is there a division among Fed officials? Certainly there will be some sort of dissent but as the economy continues to slowly rebuild the division should only get worse, not better as the Fed Governors explore future options—options that include raising interest rates and the continuation of the current quantitative easing program scheduled to wind down this fall.