5 Things to Watch at This Week's Fed Meeting

Will they or won’t they? Federal Reserve officials, who begin a two-day policy meeting Wednesday, didn’t seem close last week to a consensus to raise short-term interest rates. But nearly half of private economic forecasters still think the Fed is about to raise rates that have been pinned near zero for nearly seven years. Here are five things to watch Thursday when the Fed issues a policy statement and updated economic projections (2 p.m. EDT) followed by Chairwoman Janet Yellen’s quarterly press conference (2:30 p.m. EDT).

#1: Raise, Call or Fold

Thursday could be a nail-biter. Some Fed officials appear ready to raise interest rates, while others seem inclined to hold off amid volatility in financial markets and worries about global growth. Officials could seek some middle ground, such as holding rates near zero while sending a signal that a rate increase is likely at the Fed’s Oct. 27-28 or Dec. 15-16 policy meetings. Given the uncertainty, how Ms. Yellen frames what the Fed is doing will be as important as what the Fed actually does.

#2: One and Done?

Policy makers are set to release updated economic projections, including the “dot plot” of predictions for the level of the benchmark federal-funds rate over the next few years. Watch their estimates for the end of 2015—if most dots are bunched in the 0.25% to 0.5% range, that would suggest support for moving just once this year. Economists surveyed this month by the Journal predicted the Fed would start tightening this year but wait until the spring to make a second rate increase.

#3: Gradual Guidance

Fed leaders have said they expect to move rates up slowly in the coming months and years. Ms. Yellen told lawmakers in July that she wanted to raise rates “in a prudent and gradual manner.” Last month, Vice Chairman Stanley Fischer said the Fed “will most likely need to proceed cautiously” and “can probably remove accommodation at a gradual pace.” They may try to reinforce that message Thursday in the policy statement, in their projected path for interest rates or during Ms. Yellen’s press conference.

#4: The Long Run

In June, officials estimated economic growth of 2% to 2.3% a year, an unemployment rate between 5% and 5.2% and a fed-funds rate of 3.75% in the long run. Watch for revisions to those forecasts, which would signal changes in Fed thinking about the U.S. economy’s capacity. The absence of acceleration in wage and price growth, even with the jobless rate at 5.1% in August, could lead to lower estimates for how far unemployment can fall without stoking higher inflation. And Cleveland Fed President Loretta Mester said last month she was thinking about lowering her estimates for long-run economic growth and interest rates in light of sluggish productivity growth.

#5: Return of the Dissenters

The rate-setting Federal Open Market Committee has issued five straight unanimous policy statements. Thursday could see the first dissenting votes of 2015, whether the Fed raises rates or not. Richmond Fed President Jeffrey Lacker, who is a voting member of the FOMC this year, said there is a strong case to raise rates. While he didn’t dissent at the June policy meeting, “we’re not in the same situation we were in June, so my attitude towards waiting further is going to be different now,” Mr. Lacker said. On the other hand, Chicago Fed President Charles Evans, also an FOMC voter, said he thinks the Fed should wait until 2016 to raise rates.