Federal Reserve Chair Janet Yellen is set to appear before the Senate Banking Committee on Thursday, in the delayed second day of her monetary policy testimony. And though no major bombshells are expected, subtle nuances could speak volumes to a market hungry to learn what the Fed will do next.
Yellen testified before the House Financial Services Committee on Feb. 11, and had been slated to appear before the Senate Banking Committee on the 13th. But a snowstorm intervened, pushing the second day of her testimony two weeks into the future.
That means that Yellen, inquiring senators and market professionals alike have been granted the benefit of having seen the Federal Open Market Committee's January meeting minutes as well as some additional economic data, between the two sessions.
"The odds have gone up for something interesting to happen in day two," said Carl Riccadonna, Deutsche Bank senior U.S. economist. "This is particularly the case because we've seen the meeting minutes, and those minutes showed internal debate about what to do with the fed funds rate thresholds."
One of the Federal Reserve's key tools is the federal funds rate, which is the Fed-targeted rate at which banks lend to each other. In its January statement, the FOMC stated once again that it would keep that rate "exceptionally low ... for as long as the unemployment rate remains above 6-1/2 percent" and inflation remains low.
But now that the unemployment rate dropped to 6.6 percent in January, just a hair's breadth away from that long-watched 6.5 level, the Fed might look to change its guidance.
The problem is that the Fed is currently divided on how, exactly, to go about that.
(Read more: Kudlow: Janet Yellen's problem)
"Participants agreed that, with the unemployment rate approaching 6-1/2 percent, it would soon be appropriate for the Committee to change its forward guidance," according to the recently released minutes of the January meeting. "A range of views was expressed about the form that such forward guidance might take."
Suggestions included shifting from quantitative guidance to qualitative guidance, or including additional factors in the threshold. Other possibilities are reducing the threshold unemployment rate, or going ahead and raising the federal funds rate "relatively soon," as some hawks suggested.
"The key focus on Thursday will be any and all comments around forward guidance," Riccadonna said. "She doesn't want to commit to something, as that may upset other committee members. But she could talk about the pros and cons of different options, which would be a way of showing her hand in terms of what she favors."