Fed hawk says the bank confused the market
The Fed's lonesome hawk, Esther George, said the Fed's lack of action this week created confusion in the market, while another regional Fed president said it's possible the Fed could move forward with tapering its bond buying in October.
Kansas City Fed President Esther George, the lone dissenter on the Fed's Open Market Committee, said the Fed created confusion in the market and it risks credibility by delaying the reduction of its bond buying program.
Traders said on Friday that George's comments were largely irrelevant since she clearly is in the minority, but they were also listening to St. Louis Fed President James Bullard, who said the Fed could decide to cut back on its bond purchases in October depending on data. He also said that Fed Chairman Ben Bernanke could hold a press briefing after the central bank's October meeting, which it could use to explain its actions if it did taper.
(Related video: Fed's taper decision a close call: Bullard)
"Bullard said it was a close call on Wednesday. That means if it's a close call, they're inclined to take the next step when there's an opportunity to do so. I think we'll have to see some improvement for it to happen as early as October," said Ward McCarthy, chief financial economist at Jefferies.
Unlike much of Wall Street, McCarthy expected the Fed to begin to taper in October, rather than this week.
"For logistical reasons, October is a nice fit. The meeting is Oct. 29 and 30 and the policy would be released the day before the Fed is already scheduled to release the schedule of purchases for November," he said.
Bullard told CNBC that with inflation low, the Fed has room to maneuver and he wasn't satisfied with the decline in the unemployment rate because of the number of people dropping out of the workforce. Speaking later in New York, he said if employment continues to improve "the likelihood of tapering policy action will continue to rise."
George, speaking in New York Friday, said she was disappointed with the Fed's decision not to start winding down its quantitative easing program and said costly steps were taken in the past months to prepare markets for a tapering of the Fed's $85 billion bond purchases. She was one of four Fed officials speaking Friday, ahead of next week when at least 10 Fed speeches are scheduled.
The majority of Wall Street's major firms and banks had expected the Fed to taper back on bond buying at the September meeting, so the lack of action had a fairly large reaction. Stocks rallied hard Wednesday after the announcement, but they have erased more than half the gains since then.
(Related video: Gartman: The Fed is missing something in inflation)
David Ader, chief Treasury strategist with CRT Capital, said the Fed will be fixated on Fed speak as investors try to reassess the Fed's actions.
"How did we miss it? I think we're coming around to saying the Fed did make the points," he said, noting Bernanke has stressed the decision would depend on the economy's performance.
"This has given us a stronger sense of what clearly is on the Fed's mind…so as for George here, saying they were creating confusion, she's right about that but she's the dissenter and I don't think anybody sees it as anything other than that she's the dissenter," Ader said.
(Read more: Who in DC is shaking up the markets now?)
On the calendar next week are New York Fed President William Dudley, who speaks Monday at 9:30 a.m. ET. He is viewed as closely aligned with Bernanke and Vice Chair Janet Yellen. Also speaking Monday are Atlanta Fed President Dennis Lockhart and Dallas Fed President Richard Fisher, an outspoken hawk who does not vote on the committee.
Ader said the market is also speculating that President Obama's appointment of Yellen could come shortly. "There's some degree of anticipating that this weekend could culminate in the announcement of Yellen. It's inhibiting people who want to sell," he said. Yellen, viewed as a dove, would be a positive catalyst for higher bond prices (and lower yields) since she is expected by the market to support a lengthy period of stimulus.
No announcement is expected from the White House next week on the Fed chair, reported CNBC's John Harwood
Fed speakers in the coming week:
9:20 A.M. Atlanta Fed President Dennis Lockhart
9:30 A.M. New York Fed President William Dudley
1:30 P.M. Dallas Fed President Richard Fisher
9:30 A.M. Cleveland Fed President Sandra Pianalto
12:30 P.M. Kansas City Fed's George
12:15 P.M. Minneapolis Fed President Narayana Kocherlakota
09:15 P.M Kansas City Fed's George
5:45 A.M. Chicago Fed President Charles Evans
8:30 A.M. Boston Fed President Eric Rosengren
10:15 A.M. Chicago Fed's Evans
2:00 P.M. New York Fed's Dudley
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.