Yellen Leads Fed in Retreat as Reasons for Rate Hikes Fade

If the chair was one of the officials who forecast a single rate increase, that would mean she stepped below the median forecast of the 17 participants published June 15, which was for two hikes. That would be unusual because Fed chairs typically lead from the center of the committee. They can't do that if they are outliers, said Laurence Meyer, a former Fed governor who now runs a policy analysis firm in Washington that bears his name.

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The case for a strong consumer took a blow, however, when the Labor Department reported that employers in May created a disappointing 38,000 new jobs -- fewer than in any month since September 2010.

"It seems pretty clear the Fed's confidence was pretty badly shaken by those recent numbers," said Ward McCarthy, chief financial economist at Jefferies LLC in New York, who also pegged Yellen as likely favoring one hike this year.

"The latest readings on the labor market and the weak pace of investment illustrate one downside risk -- that domestic demand might falter," Yellen said Tuesday.