We agreed to raise rates when it went under 6.5%

Janet Yellen

Another shift in that communications strategy is set to occur when the central bank’s interest-rate-setting committee gathers for two days of talks on Tuesday and Wednesday, as it’s the first meeting to be led by Janet Yellen, the new chairwoman. The Fed will release a policy statement and updated economic forecasts at 2 p.m. Eastern on Wednesday, and Yellen will hold a press conference at the end of the deliberations at 2:30 p.m.

With the Fed and the markets basically on the same page on the economy, the current near-zero interest-rate policy, and the rate of reduction in bond purchases, the central bank has an opportunity to revamp its forward guidance tool, now the chief policy instrument.

“They’ve got a little room to unanchor these things,” said Lewis Alexander, chief economist at Nomura Holdings Inc. in New York.

So-called forward guidance attempts to drive down long-term rates by promising to keep short-term rates low for a long time.

The Fed has reworded its pledge throughout the financial crisis. Alexander said the early forms of forward guidance were simpler as the Fed was simply saying that it was a long way from raising rates. 

The Fed’s current pledge is to hold rates steady until “well past” the point when the unemployment rate falls below 6.5%.

But the unemployment rate has steadily dropped over the past year, before ticking up slightly to 6.7% in February.