After delay, Yellen faces questions over Fed message on rate hike

Mon Sep 21, 2015 4:52pm EDT
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By Jonathan Spicer and Howard Schneider

NEW YORK/ATLANTA (Reuters) - 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.

While careful not to personally criticize Yellen, who in 18 months as chair has put a premium on consensus and soliciting a wide set of views about the economy, there appears broad agreement that the Fed in recent months has added to the market instability that last week prompted a delay to a rate hike.   Continued...

Federal Reserve Chair Janet Yellen holds a news conference following the Federal Open Market Committee meeting in Washington September 17, 2015.  REUTERS/Jonathan Ernst