Washington

 

WASHINGTON —  When  When Federal Reserve officials gather this week and Fed Chair Janet Yellen speaks with reporters, investors will be seeking clues to two big questions: When will the Fed finally start raising short-term interest rates? And how  —  and  and when  —   will will it start unloading its vast investment holdings? The answers will affect loan rates for individuals and businesses  —  and  and perhaps the direction of the economy. Yet few expect to hear anything definitive. The Fed remains in a tentative tent ative wait-and-see stance. Though the central bank has signaled optimism, officials are unsure how much the economy econom y will strengthen the rest of the year. On Wednesday, Wednesd ay, the Fed will update its forecasts, and it may downgrade its estimate of growth for 2014 after the government said last month that the economy shrank in the first quarter, depressed by b y a harsh winter. On Monday, the International Monetary Fund predicted that the U.S. econom economy y will grow a modest 2 percent this year, below the IMF's previous estimate of 2.7 percent. Yellen has suggested that the U.S. unemployment rate, now 6.3 percent, overstates the health of the job market and economy. She's also expressed concern that a high percentage of the unemployed  —  35  35 percent  —  have  have been out of work for six months or more and that pay is scarcely rising for people who do have h ave jobs. Yet the Fed is getting closer to acting. The minutes of its last meeting in late April indicated that the Fed has begun discussing d iscussing the tools it could use to finally pull back the extraordinary stimulus it's provided the U.S. economy since 2008. This week's meeting is the third at which Yellen will preside as chair since succeeding Ben Bernanke in February. Analysts expect at least one announcement when the two-day policy meeting ends Wednesday: That the Fed will make a fourth $10 billion cu cutt in the pace of its monthly bond purchases to $35 billion, a sign of a steadily, if slowly, improving eeconomy. conomy. The Fed has been buying Treasury and mortgage bonds to try to keep long-term loan rates low to stimulate the economy. The Fed will likely end its bond bon d purchases this fall, with its investment portfolio nearing $4.5 trillion. But officials have said that even when they the y stop buying bonds, they don't do n't plan to start selling any. They plan to keep the Fed's holdings steady by re-investing maturing bonds. In doing so, the Fed will still exert downward pressure on long-term rates. The Fed has said it will keep its key short-term rate at a record low n near ear zero for a "considerable time" after its bond purchases end. At her he r news conference, Yellen will likely avoid be being ing pinned down on how long a "considerable time" might be. Last month, she said the Fed expects to start raising rates once sees enough progress in restoring full employment emplo yment and inflation has risen to its 2 percent targetitrate.

 

Most Fed members expect the Fed to start raising short-term rates between mid-2015 and 2016. 2 016. The central bank has stressed that even after it starts raising rates, it will likely keep them unusually low to support the economy. Minutes of the Fed's April 29-30 meeting show that officials discussed how best to unwind support for the economy once they the y begin raising the benchmark short-term rate. The minutes stressed that the discussion shouldn't be seen as a signal that any rate increase is imminent. Though the economy may not be growing as fast as the Fed earlier predicted, the job market has shown consistent improvement. Employers have added 200,000-plus jobs for four straight months. The unemployment rate has dropped to a level the Fed hadn't expected to see until year's end. But Yellen has stressed that she is studying barometers of the job market beyond the unemployment rate  —  from  from the percentage of long-term unemployed u nemployed among the jobless to the number of part-time workers who would prefer full-time jobs and the percentage of adults either working or looking for work. By those measures, me asures, the job market remains subpar, a reason Yellen has cited for the Fed's continued support. Yellen has also expressed worries that the housing recovery recove ry may be faltering. In addition, Fed officials have discussed such geopolitical risks as slow growth in Europe and a nd Russia's aggression toward Ukraine. The newest threat is rising sectarian violence in Iraq, which has sent oil prices up. Brian Bethune, an economics professor at Tufts University, said that given all the threats that could derail the U.S. economy, the Fed will be careful not to say anything that could push rates up. "The economy is trying to come back from a very weak quarter," Bethune said. "The Fed doesn't want to see long rates go up." u p." Bethune said the Fed has leeway to keep rates low because its preferred measure of inflation remains below its 2 percent target. This week's meeting will bring new faces to debate deb ate the issues. The Senate last week approved the nomination of Stanley Fischer, former head of Israel's central bank, as the Fed's vice chair. In addition, Lael Brainard, a former Treasury undersecretary for international affairs, won Senate approval for a vacant board post. Fischer, Brainard and Jerome Powell, who was confirmed for a new term, were all sworn in Monday. Monda y. Also, Loretta Mester has succeeded Sandra Pianalto as president of the Fed's regional bank in Cleveland and will participate for the first time this week. Analysts see Yellen as firmly in charge of the Fed's Fed 's agenda.

 

"Yellen is still using the Bernanke playbook," said David Jones, the author of a new history of the Fed. "I think she would wou ld like to not raise rates until the fall of nex nextt year."