Janet Yellen says she doesn't want investors to rely on theFederal Reserve for explicit guidance on the next interest-ratehike—a communication strategy that's leaving some flatly confusedabout the path of monetary policy.

Speaking Monday in Philadelphia, the Fed chair said “only onrare occasions” will the central bank spell out when it's going tomove. “I really think the best we can legitimately do is explainwhat factors are guiding our thinking,” she told the audience,referring to the Fed's intention to make policy data-dependent.

Thechallenge with that approach is that it seems to be making itharder to understand the U.S. central bank's plans. Theirintentions are signaled in statements issued after eachrate-setting Federal Open Market Committee (FOMC) meeting, as wellas subsequent comments by its 17 policy makers that don'tnecessarily add up to a coherent explanation of Fed action.

Case in point: Investors were wrong-footed by the Fed'sstatement in April, reading it as relatively dovish and thenreacting with surprise when minutes published three weeks latershowed most officials were inclined to raise interest rates inJune.

Investors face another comprehension test at 2 p.m. on June 15after the next FOMC meeting, when it issues a fresh statement andupdates its economic forecasts. Investors can also tune in toYellen's quarterly press conference for more clues.

'Vacuous' Statements

“There is a problem here,” said Charles Plosser, a formerPhiladelphia Federal Reserve Bank president. “Vacuous” FOMCstatements have become the norm as competing camps on the committeethrash out a compromise, he said.

“The desire to reach consensus on the statement makes it morevague and uncommunicative,” said Plosser. “That means it doesn'treveal the true nature of the debate as it could or it should.”

To be fair, the Fed has spent a lot of time thinking about howto improve its messaging. It has a subcommittee on communications,and the FOMC in January discussed changes to its quarterly economicprojections to illustrate how much uncertainty lies around theforecasts, according to minutes of that meeting.

St. Louis Fed President James Bullard has also argued forholding a press conference after every FOMC meeting, instead ofevery second one as is currently the case, though Yellen hasn't sofar shown any inclination to move in that direction.

Yellen and her colleagues have backed away from hinting a ratehike would be considered in June after the U.S. added just 38,000jobs in May, the weakest in almost six years. Those hoping June'sstatement will clarify what to expect in July shouldn't hold theirbreath.

“I know market participants really want to know exactly what isgoing to happen,” Yellen said Monday. “There is, as I have saidabout 18 times, no preset plan.”

Investors see no probability of a June move and a 20 percentlikelihood of a hike in July, according to pricing in federal fundsfutures contracts.

The Fed “is struggling to find the right combination of writtenand spoken signals that signal intentions but not pre-commitment,”said Ward McCarthy, chief financial economist at Jefferies LLC inNew York.

April's statement miscue wasn't the Fed's first. The FOMC alsoconfused investors last year with “dovishness at the Septembermeeting that had to be corrected at the October meeting,” saidMichael Feroli, chief U.S. economist at JPMorgan Chase & Co. inNew York.

These lapses recall the so-called taper tantrum in May 2013 whenthen-Fed Chair Ben Bernanke jarred bond investors with plans toscale back asset purchases.

The Fed's own poor forecasting record may be making mattersworse. In particular its quarterly economic forecasts, includingthe so-called dot plot projection of what officials view as thelikely pace of future fed rate hikes, have attracted critics.

“The FOMC has fairly consistently signaled a tighter path ofpolicy than the markets expected, and the markets turned out to beright,” said Jonathan Wright, an economics professor at JohnsHopkins University in Baltimore. “Communications have tended to erron the side of being more hawkish than what is ultimatelydone.”

For example, the Fed in March halved the number of rate hikes itexpects this year to two comparedwith projections in December.

Plosser, who dissented three times in 2014 in favor of tighterpolicy, said that hurts credibility. “It has been a repeatedproblem. They keep saying we are getting close and then finding areason not to do it,” he said.

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