The Federal Reserve on Wednesday is expected to lay the groundwork for its first interest rate hike in nearly a decade, as it continues to weigh whether the US recovery can hold up against collapsing oil prices and a soaring dollar.
The US central bank's latest policy meeting will conclude with certainty expected on one point: it will likely discard a pledge to remain "patient" before hiking rates, trimming one of the final verbal cues it has used through crisis, recession and recovery to describe its intent to keep rates near zero for a period of time.
The move would mark an important moment for Fed Chair Janet Yellen who, despite being seen as a policy dove, has overseen a steady whittling away of loose money promises: the policy statement during her first year as Fed chief shrank from 790 words to 529.
While the turn in language would open the door to an initial rate hike as early as June, the uncertain path of the global economy remains a dilemma for central bank officials who say they want more confidence in the US recovery and the eventual rise of inflation before committing to a rate "lift-off."
The latest policy statement is scheduled to be released at 18:00 GMT (11:30 pm). The Fed will also provide updated economic forecasts by Fed policymakers. Yellen will also hold a press conference following the two-day meeting.
The economic data, however, have been muddy - strong job creation, continued growth, and generally healthy consumer demand in the United States, but a global collapse in oil prices and a rapid run-up in the dollar that could mean the Fed remains far from its 2 per cent inflation target.
US crude prices remained mired in the low $40 dollar a barrel range on Tuesday, and the Organization of Petroleum Exporting Countries acknowledged it may be the end of this year before low prices prompt higher-cost producers in the United States and elsewhere to trim supply.
Progress toward the Fed's inflation goal may be elusive until the price of oil finds a bottom and stabilizes.
A dollar that has soared more than 20 per cent against major currencies over the past year also means imported goods are cheaper, while US exports may be nicked, dragging down growth.
Ultimately, Fed officials say they are not concerned about either trend. Low oil prices have put what the IHS Global Insight consulting firm estimates to be around $2,000 into the pockets of the average American family - money that can support consumer demand and add to gross domestic product.
"The stronger dollar is not going to be a decisive factor in the Fed's thinking," Capital Economics chief global economist Julian Jessup wrote last week. "The US recovery is robust enough to weather a firmer currency."
'A COIN FLIP'
But the rising dollar and other economic data will partly determine whether the Fed opts for June, September or another date in what is now becoming a meeting-by-meeting debate over when to raise rates.
A near majority of Fed officials publicly have endorsed the idea of removing the patience pledge, putting investors and the public on notice that a rate hike could occur at any point from June onward.
"My guess is that they will drop 'patient,'" said Alan Blinder, a former Fed vice chair, who added that the choice between June and September for an initial rate hike "looks like a pretty close call ... It feels more like a coin flip to me."
Between strong US monthly job creation and steady economic growth, the Fed's near-zero interest rate stance has seemed increasingly anachronistic, according to a growing group of Fed officials, economists and analysts who follow the central bank.
The federal funds rate has been at its low point since December, 2008.
The last time the Fed raised rates was in June, 2006, when a roaring housing market and strong growth prompted it to push its target rate to 5.25 per cent.
Investors and economists are split over whether the initial hike will come in June, or in September. Trading in Federal Funds futures contracts point to a September hike, while a recent Reuters poll of 70 economists indicated an even split between June and later in the year.
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