By Kevin Cirilli and Peter Schroeder - 06/17/14 06:29 PM EDT
Federal Reserve Chairwoman Janet Yellen will hold her second press conference on Wednesday, following the Fed's release of its quarterly economic projection and the Federal Open Market Committee's (FOMC) policy statement.
Here are five things to watch:
1.) Will Yellen offer any new clues for when the Fed will raise interest rates?
Don't bet on it. Most economists think the Fed won't raise rates until early next year, and any change to that timetable from Yellen on Thursday would be viewed as a shock.
"No big surprises tomorrow," said PNC’s chief economist, Stuart G. Hoffman. Hoffman predicted that interest rates will remain close to zero until the final quarter of 2015.
He also predicts the FOMC to announce another $10 billion tapering of its monthly bond purchases used to stimulate economic growth, given that the economy has been recovering.
"The Fed has some explaining to do, however, as it relates to the forward guidance," said Anastasia Amoroso, global market strategist at J.P. Morgan Funds. "With economic data looking increasingly normal — and not just the official unemployment rate — why is it that slower pace of rate increases is justified?"
2.) Will she even mention DC? And how might the new board members influence her decision making?
The life of a Fed chief the last few years has been pretty one-note when it comes to dealing with Congress: make nonspecific requests to boost the economy now, tackle the deficit later.
Yellen steered clear of pushing Congress in any particular direction during her last (and first) press conference, making no mention of the deficit or what the legislative or executive branch could do to boost the economy. And she has exhibited a similar light touch in her handful of appearances before Congress.
With an economy still performing well below expectations and unemployment, particularly long-term unemployment, still an issue, will Yellen prod a bit further for lawmakers to do something?
Expectations from this divided Congress have been low. And hopes for a productive close to the year took another dive after Rep. Eric Cantor’s (R-Va.) stunning primary loss, which has forced the leaders of one chamber to entirely regroup.
“I don’t expect her to pound too heavily on Congress over fiscal spending, on the theory that it would amount to beating a dead horse,” said Daniel Alpert, managing partner at Westwood Capital.
Another factor to watch is what the injection of new blood at the Fed may do. This week’s Fed meeting saw a much-needed infusion of new faces at the board. Just under the wire, two new Fed governors were sworn in on Monday: Lael Brainard and Stanley Fischer, Yellen’s new vice chairman. Jerome Powell also was sworn in for his second term.
Fed watchers in particular will be keying in on any sign that Fischer is exerting an early influence as Yellen’s second-in-command. In the monetary policy world, Fischer is a celebrity of sorts, having already headed Israel’s central bank and literally schooled Bernanke on economics as a professor at MIT.
3.) What will she blame for the slow housing recovery?
FOMC members haven't been quiet about their disappointment in the housing recovery. They have previously blamed everything from Washington uncertainty to the winter weather for stunting economic growth.
However, since the last meeting in April, housing showed signs of reversal from the weakness in the first quarter. Better weather, lower mortgage rates and higher inventories have supported sales and building activity.
"Once again, housing will still be described as something like disappointing but improving," said PNC's Hoffman. "The housing recovery remains slow and I don't think much has changed."
Added Amoroso: "Housing starts are picking up but not shooting the lights out. On the other hand, housing prices continued to edge higher, which supports consumer finances and will be noted by the Fed."
4.) Will Yellen make a second gaffe?
During her first press conference, Yellen rocked the markets when she said that interest rate hikes would begin "on the order of about six months."
"Yellen did well in her first press conference, apart from one gaffe," said Jonathan Wright, an economics professor at Johns Hopkins and a former Federal Reserve adviser. "She won’t be pinned down on the time between ending tapering and liftoff any more."
Wright said it's the new blood at the Fed that could prove the trickiest part.
"This is the first FOMC meeting with three new participants, while Jeremy Stein has gone," Wright said. "So that’s going to complicate comparison of FOMC economic projections with last time. ... It may also give Yellen a little more freedom to signal that she is not in a great hurry to raise rates."
5.) Will she address criticism of the Fed's communication strategy?
There have been growing cries for the Fed to have more frequent press conferences, including from current and former Fed officials.
The Federal Reserve entered uncharted waters when it began holding press conferences for the first time ever after a policy meeting. The practice that began under Fed Chairman Ben Bernanke has continued under Yellen, as the Fed continues to search for ways to better communicate its thinking and intentions to the markets.
Some inside and outside the Fed want to see the central bank go even further, holding a reporter chat after every meeting, instead of just a handful of times each year.
James Bullard, president of the St. Louis Fed, has said it should make press conferences a regular habit, arguing those with press conferences are now viewed as more significant than those without.
He has also argued the Fed should put out a monetary policy report four times a year, which would lay out the Fed’s concerns and perspective on the economy going forward.
Christine Lagarde, the managing director of the International Monetary Fund, got in on the action as well Monday, pushing the Fed to hold more regular press conferences that would offer “more detail” to the Fed’s thinking. Yellen is still new to the press conference, but has reportedly been a big proponent of increased Fed transparency. Will she open the door to even more on-camera chats with reporters?