By Jonathan Spicer
MILWAUKEE (Reuters) - A flurry of planned appearances this week by Federal Reserve officials began on Monday, but conflicting views by policymakers raised more questions about the U.S. 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 the likelihood of an interest rate hike this year, as they cited expectations of the inflation rate moving up toward the Fed's 2 percent target.
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, with some having multiple events planned across the United States. The flurry comes less than two weeks after the central bank decided to delay what would be its first rate hike in nearly a decade, leaving analysts and investors grumbling about muddled communications.
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 appeared to add to the confusion.
U.S. 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.
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 among the 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 next policy meeting, in late October. 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 U.S. 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 U.S. inflation.
Dudley said he was confident weak global economic conditions and the strong U.S. dollar would prove to be passing influences and allow the Fed to raise rates soon.
Williams called for a rate hike "sometime this year," citing worrisome signs in the economy that he said need to be addressed before they get out of hand.
"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 in a speech at the UCLA Anderson School of Management.
"One lesson I have taken from past episodes is that once the imbalances have grown large, the options to deal with them are limited," he added.
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.
"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."
Interest rates futures implied traders remained doubtful of a year-end rate increase, assigning a 14 percent chance of a move in October and 37 percent in December, according to CME Group's FedWatch program.