On the economy, the Fed is likely to stay cautious.
"I think we need more evidence that the hard numbers are turning around," said Joseph LaVorgna, chief economist at Deutsche Bank. "I do think we're probing a bottom. Whether this holds remains to be seen. My guess is it does. I don't know whether this quarter or fourth quarter. I think we're looking for recovery in 2010 but it'll be weak. I think the Fed has a similar view and I think it'll be reflected in the statement."
Some economists expect the Fed to tweak its quantitative easing program, which includes the purchase of Treasurys and mortgages.
"If they talk about anything at all, it will be the commercial mortgage-backed securities market. They plan to begin purchasing in that market at the end of June," said Diane Swonk, chief economist at Mesirow Financial.
She said a special challenge for the Fed is that it can only buy securities that have been rated Triple A by two agencies, and many of the CMBS have lost value.
The markets have also been looking for some type of nod from the Fed that it has a plan to exit the many programs it employed to jump start financial markets and crack the credit freeze.
Goldman Sachs chief economist Jan Hatzius, in a note, said he expects the Fed to strengthen its commitment to a low rates and adjust the quantitative easing program.
"Will they strengthen their pre-commitment to a long period of low rates? We think so, because they probably feel quite strongly that market expectations of an early exit are premature and because sending such a signal could be a very effective means of bringing down rates across the curve," he wrote.
Hatzius also points out that the Fed is likely to extend the end date for its $300 billion Treasury purchase program to the end of year.
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Stocks rose and bonds sold off Wednesday after a much better-than-anticipated durable goods report for May. The Commerce Department reported a 1.8 percent increase, compared with a forecast for a 0.4 percent delcine.
Ahead of the Fed's meeting, the Treasury was to auction $35 billion in five-year notes at 1 p.m. It is the second of three auctions this week where the Treasury is issuing a reord $104 billion in notes.
Art Cashin, director of floor operations at UBS, said the Fed is the main focus for stocks.
"They've got to walk a very fine line, reassuring the bond vigilantes that a rate hike is not in the foreseeable future. (Fed Chairman Ben Bernanke) does not want to commit to a time frame like Canada and others did. So it's going to be interesting," he said.
Cashin said Bernanke could also use his testimony before the House Oversight Committee Thursday to get his message across if he thinks the market is still unclear after the Wednesday statement. Bernanke testifies on his role in the Merrill Lynch, Bank of America merger that day.
Cashin said the market will be watching that testimony carefully. "If it starts to look like they are pulling the rug out from under him, it could have a real impact on the market. You don't want him handcuffed by political considerations of survival if another bank fails," he said.
The dollar firmed Wednesday as as some commodities, including oil , sold off. The dollar regained some of the 1.5 percent it lost against the euro Tuesday. Questions? Comments? email@example.com