The Federal Reserve may sound a bit more hawkish as Fed Chair Janet Yellen's tenure comes to an end.
Yellen's final meeting as chair of the Federal Open Market Committee begins Tuesday and ends with its statement Wednesday at 2 p.m. Yellen's final day at the Fed is Friday.
"They're not going to raise rates this time around. They do want to at least confirm the market's expectations for a March rate hike," said Tom Simons, chief money market economist at Jefferies.
Yellen leaves the Federal Reserve after four years as chair, and in that time she began the slow process toward normalizing interest rates and shrinking the Fed's balance sheet. Viewed through most of her tenure as a dove, Yellen began the process of reversing extreme crisis-level policy. She had previously served as vice chair to her predecessor, Ben Bernanke, and was president of the San Francisco Fed prior to that.
The Fed is not expected to take any rate action this week, and the market has been primed for a March hike, as well as two others later in the year. That fits with the Fed's forecast for three interest rate increases this year. But that could change under the incoming chair, Jerome Powell, when forecasts and projections are released after the March meeting. Powell has been a Federal Reserve governor.
Economists expect few changes in the FOMC statement Wednesday, but the changes Fed officials could make might be significant for market expectations.
"I think if they were to put anything that was perceived as dovish into the statement they would be reducing that [March rate hike] probability. It's going to be a more bullish commentary about the economy and maybe include something on rising inflation expectations," said Simons.
To really sound hawkish, the Fed may need more proof.