The forward guidance policy stands as the main collateral casualty such a division within FOMC entails. The market can no longer count on clear signals from the FED on how it will conduct its rate lifting agenda. While it seems highly unlikely the June meeting will see the launch of tightening, no one can discard that possibility. In a way, the FED is running monetary policy on a monthly basis, thus depriving the economic agents of any anchor when taking their decisions.
The feelings amongst FOMC members are widely dispersed when forecasting the rate levels in future. They only agree that a substantial increase will take place in 2017, a highly controversial conclusion based on an upsurge in inflation that no one seriously foresees. The dollar strength, coupled with longstanding low oil prices and moderate growth expectations, point in the opposite direction.
The graph shows to what extent policy makers express differing views on the expected rate hike in the near future. While most support a modest rise this year, their views widely differ for 2016. Thus, the market is betting that such wild differences will effectively check any significant push for the time being.
Yet, no firm assurance can be derived from such a divided picture. Thus, the day-to-day guessing on how the FOMC might react to economic figures replaces the well-entrenched forward guidance policy enshrined by Bernanke. It is true that it proved easier to convey clear messages on the FED firm commitment to cheap money when he chaired the FED. Janet Yellen faces the more intricate task of delivering a proper tightening stride while making sure it does not sap growth. Not an easy endeavour by all means.