Yellen Fed is likely this week to reiterate need to pursue flexible policy on interest rates

The Associated Press

FILE - In this March 31, 2014, file photo, Federal Reserve Chair Janet Yellen speaks to community development professionals at the National Interagency Community Reinvestment Conference in Chicago. In her first weeks as Federal Reserve chair, Yellen has made one thing clear: The Fed will keep all options open in deciding when to raise interest rates from record lows. (AP Photo/Paul Beaty, File)

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The Fed has cut its monthly bond buying from $85 billion in $10 billion increments to $55 billion. If the economy keeps improving, it will likely keep paring its purchases until ending them late this year. The pullback is expected despite tough challenges the economy faces, from a slowing housing recovery to anemic economic growth last quarter resulting in part from a brutal winter.

For investors, the big question is when the Fed might start raising its key short-term rate from zero, where it's stood since late 2008. That rate has remained a source of economic support because it keeps many borrowing rates low.

After last month's meeting, the Fed said it expected to keep the rate near zero "for a considerable time" after it ends its bond purchases. Asked at a news conference to define a "considerable time," Yellen said, "It probably means something on the order of around six months or that type of thing."

Stock prices sank on her mention of "six months" because it seemed to signal that the first rate increase would occur sooner than investors had assumed. In subsequent appearances, Yellen has de-emphasized any plan to raise rates at a specific time. Rather, she has suggested that the job market remains far from fully healthy — a hint that the first rate increase might occur well into the future.

Most economists think the first increase won't occur until the summer of 2015 at the earliest.

"I think the Fed is going to stay the course," said Diane Swonk, chief economist at Mesirow Financial. "No news is good news at this stage."

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