It looks like they're not in the same coordinate system. One important thing to know about FME is that, with the exception of the Data Inspector and Visual Preview when you have a basemap selected, it will not reproject data on the fly for you. It assumes that when you are performing any kind of spatial process on two datasets, such as clipping, that you as the workspace author will have made sure that they are in the same coordinate system.
You mention the CoordinateSystemSetter. This is a useful transformer, but it merely sets the coordinate system, it doesn't actually perform a reprojection (so you would use it when there's no coordinate system specified, or the wrong one, and you know what it should be), for that you need to use the Reprojector transformer (or it's brothers the EsriReprojector, CSmapReprojector or ProjReprojector, they differ in the library of coordinate systems they use)