Federal Reserve News - Chair Janet Yellen

Stage set for Yellen to cut through rate-hike noise

Federal Reserve Chair Janet Yellen holds a news conference following the Federal Open Market Committee meeting in Washington in this file photo from September 17, 2015.

After putting a December interest rate rise back on the agenda, Janet Yellen may now need to reinforce that message in coming weeks by "crowding out" dissenting voices in the Federal Reserve and navigating through possibly contradictory economic data.

Markets rolled back bets that rates would remain pegged near zero until next year after the Fed's statement ending a two-day policy meeting made a specific reference to the next Dec. 15-16 session as an opportunity to consider a rate rise.

Yellen has long represented the view that a rate lift-off from near zero this year was the Fed's base scenario, but that message has been drowned out by some dissenting voices and mixed signals from a central bank that says it is "data dependent."

Analysts and former Fed officials say the Fed chief should use the bully pulpit, probably by early December, to either reaffirm that the central bank is on course to lift rates next month, or to definitively back down.

Failure to do so could set the stage for potential confusion, with markets possibly overshooting and sending borrowing costs sharply higher, tripping up the economic recovery.

Traders now give a 47 percent chance the Fed will raise rates for the first time in nearly a decade in December, up from 34 percent before Wednesday's statement.

Yellen now will have more time to watch inflation and jobs data roll in through November, starting with third-quarter economic growth on Thursday and a key measure of U.S. wages and salaries on Friday.

But with two Fed governors recently opposing the house view and urging patience on rates, and skepticism having grown among investors, Yellen may need to abandon her quest for consensus and more forcefully set the course for action.