Investors and leaders in the private and public sectors can't seem to get a handle on the economy's potential "new normal."

Over the last few days, conflicting speeches by Fed representatives about the timing of an interest rate increase, reasons for missed inflationary targets, and the health of the labor market, led to volatility in the markets.

Stocks slumped Friday following Fed representatives voicing their increasingly hawkish view toward a potential rate hike later this month. The markets rebounded slightly on Monday after Federal Reserve Gov. Lael Brainard's dovish speech, only to fall once again Tuesday. The S&P 500 fell 1.6%, the Dow Jones Industrial Average declined 1.5%, and the Nasdaq dropped more than 1.3%.

Even Republican Presidential nominee Donald Trump blamed Fed chair Janet Yellen for keeping interest rates low to appease President Barack Obama. And Minneapolis Fed President Neel Kashkari said that "challenging demographics, psychological scarring from the crisis, and lackluster technological innovation" may be adding to the slow economic recovery, suggesting that non-monetary solutions, like increasing government spending on infrastructure, improving the tax code and immigration reform may be the answer, which puts the onus on Congress to help overall U.S. growth.

The theory of the "new normal" for the economy is not a new phenomenon. In 2009, Allianz chief economic adviser, Mohamed El-Erian and executives at Pacific Investment Management Co, PIMCO, coined the phrase "the new normal" which signified a low-growth economy following the financial crisis. 

Brainard said Monday the Fed must discuss how to adjust monetary policy to a "new normal" that includes lower-than-expected inflation, an unsteady labor market, foreign market and global uncertainty, and perpetually low neutral rates, all which lead her to be cautious about raising interest rates too soon.

Peter Conti-Brownassistant professor of legal studies and business ethics at The Wharton School of the University of Pennsylvania, said that Brainard makes the case that tweaking the federal funds' rate doesn't seem to be a tool that can jump-start the economy any longer.

"Her argument would be, the downside risk for people being too fearful about pent up inflation or about asset value appreciation bubbles is not as great as the real damage that we could be doing to a fragile economy that is only now starting to find its footing," Conti-Brown said in a phone interview. 

Speaking at the Chicago Council on Global Affairs, Brainard, who has been hesitant to raise interest rates in the past, is the last Fed official to speak before the Federal Open Market Committee meeting on September 20-21. Following Brainard's speech, the probability of an interest rate hike fell from earlier in the day, with Federal Funds futures now showing a 22% probability of an interest rate hike in September, a 27% chance in November, and a 57.4% probability in December. 

"I read the speech as one where she was making it quite clear that she does not support a rate hike this month," Michelle Meyers, chief economist at Bank of America Merrill Lynch, said in a phone interview. "She potentially can get on board with a hike before the end of the year, but I think she would need to see further evidence of calm in the financial system and signs of improvement in the economy."

Atlanta Fed President Dennis Lockhart also chimed in on Monday and said he expects to see a "stronger second half" of the year, following improvements in consumer spending, private construction, and factory orders, at the National Association for Business Economics annual meeting in Atlanta.

"I believe I'm on solid ground saying we'll see stronger growth in the third quarter than we did over the preceding three quarters," Lockhart said at the meeting.

Other factors, Lockhart highlighted were that the labor market is moving toward full employment and while inflation has not hit the Fed's target of 2%, his "base case forecast is that inflation will trend toward target once the slack in our labor and product markets is sufficiently reduced."

However, Brainard is not fully convinced that there aren't other factors affecting inflation.

"We cannot rule out that the sustained period of undershooting the inflation target along with global disinflationary pressures are weighing on inflation expectations," Brainard said.  

The labor market is another area of conflicting thoughts from the Fed. One argument is that the economy is not at full employment and wage growth is weak, with only a 3 cent increase in the average hourly earnings to $25.73. In August, the U.S. added 151,000 jobs, which was down from the 275,000 added in July and 271,000 in June. 

"In the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market," Brainard said. 

Lockhart argued that while all the evidence for a interest rate hike is not fully there, as improvements in labor markets and output continues, his "reasonable confidence" is "justified."

And depending on what the Fed decides in its September meeting determines the amount of volatility investors could see in the markets. 

"If they do raise rates in September, that may be a sign that they are willing to go higher faster," Dan White, Moody's Analytics senior economist said in a phone interview. "That could force the markets to price in additional rate hikes and when they make those adjustment relatively quick there can be quite a bit of turmoil."

While Professor Conti-Brown says that market participants aren't irrational when trying to reprice assets.

"They are trying to make sense of how to value these assets, in most cases the equity of U.S. corporations, in light of the change in availability of liquidity," he said. "That's hard to do."

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