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Yellen faces Senate grilling on Fed rate policy, transparency

Key Points
Yellen's testimony: What to expect

Federal Reserve Chair Janet Yellen is expected to face pointed questions this week from U.S. lawmakers aimed at revealing details about the Fed's timing on interest rate hikes, as well as fresh scrutiny about transparency at the central bank.

Yellen will likely give away little in her prepared testimony for the Senate Banking Committee on Tuesday, and the House Financial Services Committee on Wednesday. But her answers to lawmakers' questions will be parsed for insight into the her thinking about issues like persistently weak inflation, stagnant wage growth and whether she still feels the nation's falling unemployment rate disguises lingering ills in the labor market.

Read MoreWillYellen set the dollar free?

Yellen's appearance before the Senate will be a key test of her ability to navigate the new Republican-controlled Congress while steering the Fed to a historic change in policy expected later this year.

Janet Yellen, Chair of the Federal Reserve.
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The Fed has not raised interest rates since 2006, and for the last seven years has expanded the boundaries of central bank activism with more than $3 trillion in asset purchases and near-zero interest rates.

Conservatives within the central bank and many Republicans in Congress argue that the Fed under Yellen, an Obama appointee with strongly stated concerns about the damage the financial crisis did to working families, is out of step with improvements in the U.S. economy, and lawmakers will likely press for details on when policy will change.

The last two Fed policy statements have said the central bank will remain patient when deciding to move short-term rates higher. Lawmakers are expected to nudge Yellen on when "patient" will be dropped.

Read MoreWatchthis part of Yellen's remarks for a mover

"We suspect that she will characterize the risks around those choices in a way that suggests a greater likelihood that the Committee will reiterate the "patient" language in March and that "liftoff" in June is not the most likely outcome," Nomura economists said in a note.

Yellen must also make sense of frustratingly ambiguous economic data.

The U.S. economy continues to grow at a healthy rate, and the unemployment rate is dropping. But inflation has slipped further from the Fed's two percent goal, and a weak global economy has raised the risk that trouble overseas could throw the U.S. recovery off course.

Watch this part of Yellen's remarks