The Federal Reserve is not necessarily giving the most consistent of signals at the moment.

Superficially, Fed Chair Janet Yellen, San Francisco Fed President John Williams and Dallas Fed President Robert Kaplan:  All three were urging the same thing, namely “gradual increases in the federal funds rate.”

But yes, there was a difference was in “tone.”

Mrs. Yellen was about delay, with conditions for a rate hike set out and some skepticism about the rise in core consumer price inflation saying: “… core PCE inflation, which strips out volatile food and energy components, was up 1.7 percent in February on a 12 month basis, somewhat more than my expectation in December. But it is too early to tell if this recent faster pace will prove durable…”

Mr. Williams was more “sooner rather than later” saying: "… the economy’s “neutral” real rate — that is, the level of the real federal funds rate that would be neither expansionary nor contractionary if the economy was operating near its potential — is likely now close to zero … the current real federal funds rate is even lower, at roughly minus 1-1.25 percent, when measured using the 12-month change in the core price index for personal consumption expenditures (PCE), which excludes food and energy.”

Mr. Kaplan said he expected the U.S. economy to prove resilient this year but that the nation's central bank should proceed gradually and cautiously in raising rates, which of course differentiated him from  the Fed chair. Interestingly in comments to reporters Mr. Kaplan declined to rule out a rate increase at the Fed's next meeting on April 26-27 .

This kind of divergences of opinion has been something we have seen on the rise in recent times when looking at central bank policy globally as we have moved away from the binary “rates up, rates down” concept.

We have multi-facetted policy possibilities and with that multiple options. Traditionally the Fed chair’s views have dominated but the Fed has become more collegiate in recent years. Nonetheless, there is a clack of non-economists on the FOMC, relatively a rather large group on the moment who will tend to back the Fed chair in policy decisions.

Investors could do well keeping in mind markets are not very good at dealing with the nuances of central bank policies and that's why headlines including the words “Yellen” and “dovish” were all the financial markets required to react.

In many ways, the balance of risks now comes down to the conditions Yellen will be offering.

If one believes that consumer price inflation (CPI) risks are to the upside, or the dollar is unlikely to appreciate, or that the Euro area economy will outperform expectations, then the Fed’s current policy position seems untenable in the median term.

From its side, the European Commission just provided the March Economic Sentiment Indicators (ESI) that registered a third consecutive drop for the Euro area by 0.9 points to 103.0.

Please take notice the related data were collected before the Brussels’ terror attacks of March 22!

But it's also a fact, sentiment data always need to be treated with considerable caution, as there is a tendency to over-stress the underlying economy.

Besides that, the chief European economist Jean-Michel Six at the ratings agency Standard and Poor’s just trimmed the growth and inflation forecasts for the Euro zone and compared the Euro area to a plane “flying on one engine” and “fighting for altitude.”

S&P now expects euro area to grow at 1.5 percent this year versus 1.8 percent back in November while it made even more substantial revisions to its inflation projections, which it brought down to just 0.4 percent for this year, which is almost a third of the 1.1 percent it previously estimated

Long-term investors could do well not overlooking the economic and financial divergences between the U.S. and the Euro area will not abate anytime soon, on the contrary.

Never forget “cash or cash-equivalents” are also asset classes that can protect your portfolio substantially when irrational markets are practically the only game in town ...

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.