How to watch the Fed's announcement on interest rates

Federal Reserve poised to raise interest rates

The Federal Reserve's Open Market Committee (FOMC) releases its statement on monetary policy at 2 p.m. ET Wednesday. In that statement, the Fed's benchmark interest rate, currently at zero, is expected to be increased by a quarter of a percentage point. Then, Federal Reserve Chair Janet Yellen will hold a press conference at 2:30 p.m. ET to answer questions about the interest rate decision, the economy and other issues related to monetary policy.

  • What: Fed decision, followed by press conference with Janet Yellen
  • Where to watch/listen:
  • In two recent talks, Yellen indicated that a Fed funds rate hike is likely, and the "very good November jobs report sealed the deal," according to PNC economists Stuart Hoffman and Gus Faucher. Yellen "has continued to emphasize that the path of rate hikes will be very gradual after the initial increase."

    Sharp losses in high-yield bonds that started last week are not expected to derail a rate hike by the Fed, but Yellen is expected to stress that further tightening will come gradually and to say that the central bank is monitoring developments.

    The effects of Fed's first rate hike since 2006 on the U.S. economy are likely to be tiny, but how the central bank and Yellen communicate the Fed's intentions could have broader implications for financial markets and the public. Therefore, Yellen is expected to emphasize that the Fed won't be following a schedule of raising rates at each FOMC meeting, with an irregular course contingent on economic conditions.

    Yellen is also likely to underscore the point that even when the Fed goes through a cycle of what analysts expect will be two to three additional rate hikes in 2016, the policy rate will still be under historical averages.

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