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As the U.S. Federal Reserve's chief communicator, Chair Janet Yellen is under building pressure among her colleagues and global investors to clarify where the world's biggest central bank is heading and how it is making its decisions.
The calls have come from both her policy opponents like St. Louis Fed President James Bullard and more centrist sympathizers like Atlanta Fed President Dennis Lockhart, as well as market analysts and investors who say they have been confused about the Fed's direction.
It is perhaps her biggest test yet as she tries to guide a committee currently divided between those who feel the U.S. economy has healed enough for a rate hike, and those who feel a weak global economy could undermine the country's growth and recovery.
Aside from last week's press conference, Yellen has been largely absent from the public stage in recent weeks -- focusing attention on a Thursday speech that could give insight into her place in that debate.
In the interim, analysts and investors insist the Fed has let seeming contradictions take hold -- saying that markets should not influence monetary policy, but then reacting to markets; declaring policy is data dependent and then saying that a 5.1 percent unemployment rate still needs to fall further.
"This will be a test and maybe the largest one she's faced yet," after an initial period of relative harmony at the U.S. central bank, said David Stockton, the Fed's former research director.
The stakes are global. A mistimed move by the Fed could see the U.S. raising rates as the world economy slows, triggering a further global slowdown as investors readjust to the Fed's move and perhaps pull capital from emerging markets.
"I don't think we are stuck in an adverse loop with markets," Lockhart said on Monday. But "uncertainty about the (Federal Open Market Committee's) policy intentions probably added to the overall environment of uncertainty that precipitated the volatility in mid-August...I am in the camp that would like to see the committee continue to refine its communications approach, particularly in this period."
SOME DATA IS MORE EQUAL THAN OTHERS
Though the Fed says it is data dependent, it is not clear that each member views the same data with the same priority, or puts the same weight on the Fed's twin employment and inflation goals. That could be fixed, Lockhart said, if the central bank developed a consensus "reaction function" to outline the conditions or triggers for a rate hike.
Bullard went a step further in an unusual televised appeal Monday asking former U.S. Treasury Secretary Lawrence Summers and others to effectively stop making public arguments against a rate hike, and muddling the Fed's discourse.
The confusion, coupled with Yellen's cautious tone at a press conference last week, has left investors discounting a rate hike until next year - despite Fed forecasts that show 13 of the Fed's 17 policymakers expect to raise rates this year.
Yellen, scheduled to speak on Thursday in Amherst, Massachusetts, may need to reclaim the message.
"I would think she will try to clarify things, one way or the other, because I cannot possibly think they are unaware of the problem that they have," said Roberto Perli, a former Fed official who is now partner at Cornerstone Macro.
On Thursday, the Fed cited risks from China and elsewhere and downward pressure on U.S. inflation from a strong dollar and weak commodities as reasons to hold off raising rates for the first time in nearly a decade.
While the decision had near-unanimous backing, a handful of hawkish policymakers like Bullard did not have a formal vote on the FOMC, and comments over the weekend suggested a close call.
Underscoring the sometimes fractious structure of the U.S. central bank, seven of the 13 officials who recommend a tightening this year only want one rate hike, while six want two or more hikes, according to the forecasts.
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Only just over half economists polled have predicted such an outcome, a rare occurrence, and a sign of just how hard it has become to read the Fed these days.
Prior to the rate decision, Fed Chair Janet Yellen had not spoken in almost two months. Two of her closest allies had spoken late last month but delivered seemingly contradictory messages just days apart.
After the decision, Yellen said while it was an "unfortunate state of affairs" that every comment by a Fed official is parsed for hints about the Fed's next move, "uncertainty in financial markets" is natural when a policy shift is near, as it is today.
Policymakers do not, she said, try to make up their minds on a daily basis based on the economic release of the moment, but use their regular meetings to take stock of the accumulated information and make a decision from there.
"We do our darndest to pull together the best analysis we can," Yellen told a news conference.
The issue appears to be how Yellen manages the rate setting body. Like her predecessor Ben Bernanke she listens to others before speaking at the open markets committee and she appears to value forming consensus, shown by the fact that there was just one dissent in Thursday's vote.
The language used by the Fed is aimed at giving it a high degree of flexibility when it comes to rate decisions.
That may now be a weakness when it comes to communicating where the Fed is in situations in which it might need to pivot in response to developments such as the recent market turmoil in China and beyond, possibly leading to continued volatility in financial markets.
For months the Fed has said it will only raise rates once it is "reasonably confident" that inflation will rise back to its 2-percent target. At the same time, it has said it "expects" it will rise toward that rate, despite continued misses, and without spelling out what more information would be needed.
"I think the Fed has muffed the communication going into this meeting," said Lou Brien, analyst for Chicago trading firm DRW Holdings. "They could have offered more clarity."
Markets were pricing in a one-in-four chance of a 25 basis point rate rise ahead of Thursday's meeting, according to the CME Fedwatch tool.
TOWER OF BABEL
The mixed messages in recent months mark a departure from Yellen's pledge in an April 2013 speech to end the days of "never explain, never excuse", when she said the Fed would "reap the benefits of clearly explaining its actions to the public".
Yellen earlier this year became a convert to so-called data-dependent policy-making. The idea was that the Fed would say what the economic data should look like before it tightens policy allowing the public to try to figure out if incoming data met that bar.
In August, the New York Fed president William Dudley suggested that turmoil in global financial markets meant the chances of a September rate hike were receding. Just days later Fed Vice President Stanley Fischer left the door to a rate rise open.
That made the Fed look like a "Tower of Babel," said Wells Fargo economist John Silvia.
Still, not all investors were thrown by the Fed's lack of clarity. In their view, Fed policy-setters simply cannot make the kind of guarantees on rates that they used during the depths of the recession.
And with data - and global financial turmoil - pushing the Fed is different directions, Yellen may have made the right choice in staying silent, rather than risk appearing to be overly swayed by one economic data or another.
"The best you can hope for is guidance around progress being made toward their objectives," said Craig Bishop, lead strategist for the U.S. fixed income group at RBC Wealth Management, which has $275 billion under management.