A flurry of planned appearances this week by Federal Reserve officials began on Monday, but conflicting views by policymakers raised more questions about the US central bank's ability to manage its message at a critical juncture.
William Dudley, head of the New York Fed, and John Williams, head of the San Francisco Fed, both signaled support for an interest rate hike this year, saying they expect inflation to rise towards the Fed's 2-percent target. Williams sounded more hawkish, saying that just "a little bit" more data could convince him that a rate hike is needed.
But Charles Evans, head of the Chicago Fed, took a far more dovish view, calling for rates to stay near zero until mid-2016.
The Fed's 17 policymakers have scheduled 16 separate speeches or public appearances this week across the country, less than two weeks after the central bank decided to delay what would be its first rate hike in nearly a decade.
With financial markets increasingly predicting rates will not rise until next year, Fed Chair Janet Yellen attempted to set the record straight last week when she said the central bank was still on track to move before year end.
But the conflicting messages from Dudley, Williams and Evans did little to clear the air.
US stock markets plunged on Monday with investors complaining that the Fed's so-called data-dependent policy stance is not providing enough clarity for financial markets.
"A lot of investors think the Fed is confused," said Monahan Amana, managing director at Beam Capital Management LLC. "They're putting themselves in a corner by saying they expect to raise rates between now and the end of the year when the economy every day is proving otherwise."
Evans acknowledged the frustration and pointed to surprisingly weak inflation readings and the Fed's decentralized structure - in which each policymaker does their own analysis - as reasons. He does not see inflation reaching the Fed's 2 percent target until 2018.
"Unfortunately that still leaves a lot of room for guess work ... because the inflation environment right now is meager," he told reporters in Milwaukee following a speech at Marquette University. "It ends up being a very individual assessment. ... It still ends up being artful."
Yellen and Vice Chair Stanley Fischer are among the central bankers taking to microphones this week, including at two Fed-sponsored conferences in St. Louis and Boston.
DUDLEY'S CASE FOR "LIFTOFF"
Evans, in his speech on Monday, defended the Fed's dovish wing and said the Fed should take an "extra patient approach" given subdued price pressures. He cited "substantial costs" to prematurely hiking rates, including Fed credibility.
After nearly seven years of near-zero borrowing costs, forecasts show most Fed officials expect to begin tightening monetary policy later this year. Evans, who has proven influential in post-crisis policymaking, is one of just four who want to wait at least until next year.
Dudley is also seen as a dove, but, like Yellen, said the rate hike will likely come this year, possibly as soon as the October policy meeting. There will be one other policy meeting this year after that, in December.
While the Fed's preferred inflation measure is 1.3 percent now, Dudley's contention that it could rise to 2 percent next year is more bullish than the views of many of his colleagues.
"If the economy continues on its trajectory ... it's a pretty strong case for liftoff," with the Oct. 27-28 session "live" for the rate hike debate, Dudley said at an event sponsored by The Wall Street Journal in New York. [FED/DIARY]
Even a modest US rate hike could rock bond markets, hurt foreign currencies and suck capital from emerging markets. In standing pat earlier this month, the Fed cited worries of a global economic slowdown, market turmoil, and low US inflation.
Dudley said he was confident weak global economic conditions and the strong US dollar would prove to be passing influences and allow the Fed to raise rates soon.
Williams for his part cited rising house prices as evidence that waiting too long to raise rates has its own set of potential risks.
"I am starting to see signs of imbalances emerge in the form of high asset prices, especially in real estate, and that trips the alert system," he said at the UCLA Anderson School of Management. But Williams also defended the cacophony.
"It’s not simple, there is no simple formula,” he told reporters afterward, of the decision to raise rates. “A committee with people who have different perspectives and different views can come to better decisions than just one person making decisions."
The forecasts suggest most Fed officials see a single rate rise this year, followed by about four further modest moves in each of the next few years.
Interest rates futures implied traders remained doubtful of a year-end rate increase, assigning an 11 percent chance of a move in October and 35 percent in December, according to CME Group's FedWatch.