Yellen makes 'uncertainty' new mantra as market doubts Fed view

Tue Jun 21, 2016 10:36am EDT
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By Lindsay Dunsmuir and Ann Saphir

WASHINGTON/SAN FRANCISCO (Reuters) - The U.S. Federal Reserve's dwindling confidence in its own outlook and resulting confusion among investors are creating a policy problem that may require chief Janet Yellen to lay out her own views more forcefully.

The Fed chair's next communications test comes on Tuesday and Wednesday during her semi-annual testimony to U.S. lawmakers, less than a week after the central bank kept interest rates unchanged near record lows and lowered its projections for hikes in 2017 and 2018.

A self-described consensus builder, Yellen sees her job as reflecting the whole committee's views rather than setting an agenda for others to follow.

"I think that's a very laudable intent, but sometimes that produces a lack of clarity," said former Fed staffer and current partner at Cornerstone Macro LLC Roberto Perli. "Sometimes there is a consensus for one reason and then next time there is a consensus for a different reason so the story shifts and people get confused."

In fact, Fed policymakers' deepening uncertainty about their own projections has resulted in the central bank sending mixed messages - repeatedly ratcheting up rate hike expectations only to tone them down later.


At Wednesday's quarterly news conference Fed officials' doubts were in plain view, with Yellen using the term "uncertain" or its variations 13 times, more than twice as often as in March. In December, when the Fed raised its rates by a quarter point for the first time in nearly a decade, that word only came up twice.   Continued...

U.S. Federal Reserve Chair Janet Yellen holds a press conference following the Fed’s two-day Federal Open Market Committee (FOMC) policy meeting in Washington June 15, 2016. REUTERS/Kevin Lamarque