Federal Reserve

Yellen's debut with the media: Plenty at stake politically

Cramer: Fed is not our enemy
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Cramer: Fed is not our enemy

Janet Yellen becomes the new public face of the world's most powerful financial institution on Wednesday when she meets the press for the first time as chair of the Federal Reserve.

Yellen will address reporters around 2:30 p.m. EDT, after the Fed's Open Markets Committee issues its statement on monetary policy. Some of the mystery surrounding the meeting evaporated following the February employment report showing a gain of 175,000 jobs.

Janet Yellen
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That was good enough to virtually ensure that the Fed will announce a further cut of $10 billion in its monthly asset purchases split evenly between Treasury bonds and mortgage-backed securities. Yellen is not so dovish that she would reverse former Chairman Ben Bernanke's plans to end quantitative easing unless conditions get markedly worse.

And many Wall Street prognosticators believe a good deal of the softness in economic data in January and February was weather-related and will get reversed in the spring. Morgan Stanley put out a note on Tuesday arguing that if you correct for the effects of the unusually harsh winter "domestic spending retains vigor … After Q1, the economy should rebound like an uncoiling spring on the expression of pent-up demand. Over our forecast horizon, real GDP expands at a 2.7 percent pace this year … and only a touch slower in 2015."

So at least on the top headline level, Yellen is not likely to make big news. But there's still plenty at stake, both politically and for markets.

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The FOMC is expected to back away from its target unemployment rate of 6.5 percent as a signal for the timing of rate hikes. Joblessness is now at 6.7 percent, but few would argue that the labor market is healthy. There is a great deal of debate about just how much "slack" there is and how much lower the unemployment rate can go given that the short-term jobless rate is at 4.2 percent, back below prerecession levels. Is the natural unemployment rate now just significantly higher? Are the long-term jobless simply never coming back to the labor market?

Anything Yellen says about this will be market moving and draw extensive commentary.

Will she be specific in what data points beyond the unemployment rate the Fed will use to decide when it is time to consider rate hikes? Will she invoke the quits rate? Or the long-term jobless rate? Or will she refer to a vague group of "other factors?"

She will also be asked what she thinks of the uptick in wage growth to 2 percent. Is that a worrisome sign of nascent wage inflation that the Fed must worry about? Or is it just a statistical fluke brought on by the cold winter keeping lower paid workers on the sidelines?

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Yellen is likely stick to a fairly tight script suggesting the Fed is watching all of these things but still believes near-zero interest rate policy is warranted until well after the jobless rate hits 6.5 percent. But if she breaks any new ground at all it could hit both stock and bond prices.

On the political front, Democrats will be eager to see the Yellen they know and love, solidly dovish and pledging to keep rates low and not speed up the taper throughout this midterm election year.

The party is in enough trouble with a sluggish economy and an unpopular health-care law and incumbent president likely to cost them seats in the House and possible control of the Senate. The last thing they want to see is the Fed chair tapping the breaks and slowing the economy even further.

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Fed survey: Rate guidance change expected

Republicans, meanwhile, mostly despise the Fed's quantitative easing policy and want Yellen to wind it down as soon as possible. They are likely to jump all over any comments she makes suggesting the Fed will take any further steps to fight joblessness. GOP members of Congress such as Kentucky Sen. Rand Paul believe the central bank is risking an inflation spike while usurping congressional authority over economic policy.

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New Fed chairs usually get a bit of honeymoon period. And Yellen breezed through her confirmation hearing unscathed. But as the political season heats up, she will quickly become fair game for partisan attacks.

Then there is the big "gaffe" question. Will some reporter trip Yellen up and get her to say something she doesn't want to that will roil markets? The odds of this are pretty close to zero. By all accounts, Yellen is a master of detail and control and will have prepared for any question the Fed press corps may throw at her. She will have spent hours with Fed staff prepping for the media session. So if some questioner does manage to throw her off her game, they should be short-listed for a Pulitzer.

—By Ben White. White is POLITICO's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet POLITICO Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.