Has the Fed painted itself into a corner?

A growing chorus of economists and analysts are suggesting that policymakers, who really want to get on with the process of bringing interest rates back to a normal level, just won’t be able to do the deed.

On Thursday, economists at BNP Paribas wrote in a research note that they do not expect any additional rate increases from the Fed at all in 2016 – nor in 2017.

“We see the Fed as trying to manage a retreat in an orderly fashion, while hoping for the best,” the economists wrote. “We do not think the best will materialize.”

Everything from deeper pain in emerging markets to further easing from other major global central banks is conspiring against the Fed, BNP’s team wrote.

“What strikes us most is the difficulty for the Fed to re-engage in this environment after a pause, since that might make the volatility come back. We have to see a relatively long period of convincing calm before rate hikes can be delivered, and by that stage we see a slowing economy raising questions about the need for rate hikes,” they added.

But as economist Tim Duy wrote on his influential “Fed Watch blog” on Thursday, “the Fed just isn’t ready to stop talking about rate hikes later this year.”

Duy doesn’t rule out rate hikes in 2016 altogether, but he believes the Fed should acknowledge that tighter financial conditions have the same effect on the economy as tighter monetary policy. If policymakers could bring themselves to admit that reality, Duy argued, “this will also sustain the expansion and allow wage growth and inflation accelerate.”

There’s a big downside to that scenario, Duy acknowledged. It could put the Fed in the position of having to raise rates relatively quickly, if inflation picks up once the financial markets have settled.

That may well be the biggest fear haunting some policymakers. Aggressive rate hike cycles have been blamed for ending most previous economic expansions. Chairwoman Janet Yellen acknowledged as much in her December press conference.

“I think it’s a myth that expansions die of old age,” Yellen said. She did not add, as many economists might, that the Fed kills them.

But Duy believes that the Fed is sticking too doggedly to a rate framework that hails from an earlier era, when global financial markets weren’t so interconnected and interest rates around the world weren’t negative.

“The Fed will take a pause on rate hikes. An indefinite pause. The sooner they admit this, the better off we will all be. Indeed, the sooner they admit this, the sooner financial markets will calm and the sooner they would be able to resume hiking rates.”

It can be tricky for the Fed to make monetary policy decisions that appear to respond to financial markets. But some economists believe Yellen and some other policymakers protest too much that they are keeping every option open. In FedSpeak, that comes across as “monetary policy is not on a preset course,” a phrase Yellen repeated often in her testimony to Congress this week.

But as Duy points out, if the Fed continues to insist that the only way forward is up, even if it’s gradual, a preset course is exactly what it’s on.