The Federal Reserve has communicated its perspective on where interest rates are headed in the future through the Fed dot plot, though there have been some outliers from the group. In addition, several Fed leaders have expressed differing opinions on the direction of the U.S. economy, leading to mixed signals for investors. Nathan Sheets, Citi Global Chief Economist, joins Yahoo Finance to discuss the economy, Fed leadership, and how the Central Bank needs more cohesion.

"I think that's what we're seeing, and that's what we're hearing at the moment, is the markets now are trying to grasp kind of what is the signal from the Fed and how committed is the fed to getting inflation back to 2.0%, or is 3%, 2.7, 2.8%," explains Sheets. "In Jay Powell's book, is that quote, unquote 'good enough?' I think that's the debate right now that people are having about Fed policy: how does he think about upper two-handle inflation."

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Video Transcript

BRAD SMITH: As our own reporter Jennifer Schonberger had pointed out earlier in the show, going into that last meeting, it sounded like they were being more hawkish, only to come out with the decision that they did. And for one of the dots that's represented on that plot, she actually spoke with the Fed president over-- of course, at the Federal Reserve Bank of Richmond. And he had this to say to her about the economy. He does see some segments of the economy weakening, looking for conviction that inflation is coming back to target here. Their target is 2%.

NATHAN SHEETS: Yes.

BRAD SMITH: How far off of that are we, from your perspective?

NATHAN SHEETS: Well, let me just say broadly. I think at the moment, a Fed communication is in disarray, when you have the Fed chairman giving a press conference. And then afterwards, the need for various FOMC members to come out and say, well, this is what the chairman really meant, you know that things are-- things are not on an even keel.

And I think that's what we're seeing. And that's what we're hearing at the moment is the market's now are trying to grasp kind of what is the signal from the Fed, and how committed is the Fed to getting inflation back to 2.0%, or is 3%, or 2.7, 2.8%? In Jay Powell's book, is that-- is that, quote, unquote, good enough? And I think that's the debate right now that people are having about Fed policy, it's how does he think about, you know, upper to handle inflation.

SEANA SMITH: Well, and even how? I'm going to put that question to you. How do you think he's thinking about the upper handle of 2% inflation? And then, when it comes to what that means for policy next year, what's in your base case?

NATHAN SHEETS: Yes. So what's-- what's challenging here is that previously, Jay Powell had emphasized 2.0%. I'm going back to the target. And it feels like he kind of opened the door to something-- to something different.

Now our base case for the economy is that the Fed is at 2.0% kind of target. And they're committed to it. But there's more uncertainty around that than there was previously, as a result of what Powell said and how he handled that press conference.