Yellen Fed's Communication Strategy (+INCOMPETENCE) Leaves Investors Dazed and Confused

Speaking Monday in Philadelphia, the Fed chair said "only on rare occasions" will the central bank spell out when it's going to move. "I really think the best we can legitimately do is explain what factors are guiding our thinking," she told the audience, referring to the Fed's intention to make policy data dependent.''

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"There is a problem here," said Charles Plosser, a former Philadelphia Federal Reserve Bank president. "Vacuous" FOMC statements have become the norm as competing camps on the committee thrash out a compromise, he said.

"The desire to reach consensus on the statement makes it more vague and uncommunicative," said Plosser. "That means it doesn't reveal the true nature of the debate as it could or it should."

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April's statement miscue wasn't the Fed's first. The FOMC also confused investors last year with "dovishness at the September meeting that had to be corrected at the October meeting," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

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

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

"The FOMC has fairly consistently signaled a tighter path of policy than the markets expected, and the markets turned out to be right," said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore. "Communications have tended to err on the side of being more hawkish than what is ultimately done."