WASHINGTON — What the world hopes to hear Wednesday from the Federal Reserve can be summed up in one word: clarity.
Chairman Ben Bernanke will be pressed to settle the wave of confusion and speculation that's consumed investors since he spoke to Congress last month about the Fed's drive to keep long-term interest rates at record lows.
Here's what to look for from each of four key events Wednesday: a statement the Fed will issue when its two-day meeting ends; the Fed's updated economic outlook; Bernanke's news conference; and the reaction of investors:
A big question is whether the Fed will revise the stance it's taken in the statements issued after its most recent policy meetings: That it will continue to buy $85 billion a month in Treasury and mortgage bonds — and that its bond purchases will continue until the outlook for the job market “has improved substantially.”
The Fed has not defined “substantially.” And Bernanke has stressed that the Fed could increase or reduce its bond purchases at any time depending on the economic outlook. He's also said that even after the Fed has begun to curtail the purchases, it could reverse course and step up its bond buying if it felt the economy needed more support.
The statement is expected to repeat the Fed's commitment to keep its key short-term interest rate at a record low near zero.
This is one of four meetings each year when the central bank updates its economic outlook, based on the individual forecasts of 19 Fed officials. If the Fed downgrades its outlook for growth and employment, it would suggest that officials think a still-weak economy continues to need substantial Fed stimulus. Investors would likely conclude that the Fed won't scale back its bond purchases soon.
If, on the other hand, the Fed upgrades its outlook, it would be seen as a signal that it thinks the economy can now manage with less stimulus. The likely conclusion: That the Fed is moving closer to reducing its bond purchases. That conclusion would upset some investors because it could lead to higher interest rates and lower stock prices.
The day's major event is Bernanke's session with reporters. And the question is how far he'll go to define a substantial improvement in the job market and to clarify the Fed's timetable for slowing its bond purchases.
However he does it, the chairman will surely address the uncertainty created by the mixed messages he sent in his congressional testimony last month.
Bernanke almost certainly won't say precisely when the Fed will start to slow its bond purchases.
Global financial markets are hoping for a signal that no pullback in the Fed's economic support is imminent. If Bernanke manages to reassure them, the market reaction may be muted.
If, on the other hand, the Fed's message is that it will start scaling back its stimulus as soon as September, investors might send stock and bond prices down and interest rates up.
President indicating change
WASHINGTON — President Barack Obama has given the clearest signal yet that Chairman Ben Bernanke will likely leave the Federal Reserve when his term ends in January.
During an interview with PBS' Charlie Rose that aired Monday, Obama said Bernanke has “already stayed a lot longer than he wanted or he was supposed to.” Obama also said Bernanke has done “an outstanding job.”
Obama's comments came in response to a question that touched on whether he would reappoint Bernanke to a third four-year term.
Bernanke is widely expected to make this his last term. The speculation intensified when Bernanke said through a spokesman in April that he would skip the Fed's annual August conference in Jackson Hole, Wyoming.
Janet Yellen, the Fed's vice chair, is considered a front-runner to succeed Bernanke.