For Fed chief, a new approach

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For Ben Bernanke, taking the podium for the first time after a rate decision isn't just an attempt to boost the transparency of the U.S. Federal Reserve. It's a pivotal moment for the chairman of the world's most powerful central bank to signal the direction ahead.

It's also an opportunity for Mr. Bernanke to seize control of his own message.

This week's decision on U.S. interest rates is unusual not just for its change in time slots - which will see traders' eyes glued to screens a couple of hours earlier than is traditional.

Rates will stay on hold and the U.S. central bank will likely repeat that they will stay that way for "an extended period."

The briefing is a chance to provide clarity on the way forward and comes as a series of challenges threaten the recovery - from hot inflation in China to Europe's sovereign debt crisis and surging prices at the pump.

The press conference, likely the last before the Fed wraps up the second leg of quantitative easing at the end of June, "provides the chairman with a great opportunity to discuss his economic outlook," said Jennifer Lee, senior economist at Bank of Montreal.

"He will likely pepper his comments with familiar phrases such as 'increased evidence that a self-sustaining recovery may be taking hold' and that the job market has 'improved only slowly' but that it will be 'several years before the unemployment rate has returned to a more normal level,' " Ms. Lee added.

For months, Mr. Bernanke's adoption of a second round of easing measures aimed at injecting liquidity into the financial system has come under attack. Critics - many of them in emerging markets - have lashed out at the $600-billion (U.S.) bond-buying program, saying it has destabilized capital flows and hurt the global financial system.

Now, as those measures are set to end, he is taking up the microphone, and with it, the chance to craft his own message about the legacy of his policies.

He will, no doubt, be carefully scripted and stay on message. But investors will comb through his comments for hints on when the Fed might start to hike rates, along with details on the nature of the recovery and the health of the labour market.

Wednesday's rate announcement will be moved to 12:30 p.m. ET, and - for the first time in the Fed's history be followed by a press conference at 2:15 p.m.

His appearance comes the day before a report is expected to show the U.S. economy grew just 1.9 per cent in the first quarter of this year, a slowdown from 3.1 per cent in the prior quarter. The economy faces domestic headwinds of rising gasoline prices and a continued slide in home prices.

Still, it's a "temporary soft patch" and growth will accelerate later this year as the labour market improves and spending picks up, said economists at Toronto-Dominion Bank.

CIBC World Markets expects a better showing than most for the first quarter, annualized growth of 2.5 per cent, but that's still shy of what would typically follow a recession, yet another issue for Mr. Bernanke in that it illustrates the fragile nature of the recovery.

"After posting its best performance in three quarters, the U.S. economy likely moderated in Q1 as it met with assorted speed bumps, including higher energy costs and a slowdown in trade," said CIBC economist Krishen Rangasamy.

"The former burnt a hole in consumers' pockets, offsetting in part the benefits received from the extension of tax cuts in the quarter, and restraining growth in consumption spending."

Canada's economy looks to be in a soft patch, too. Economists expect a report Friday will show activity was flat in February, with weak manufacturing and wholesale sales the chief culprits.

The release comes as the Canadian dollar hit a new three-and-a-half year high last week. Factors driving the currency include broader U.S. dollar weakness, strong commodity prices, hotter-than-expected inflation and expectations that the Bank of Canada will start raising interest rates in the coming months.

The lofty levels may not last. "While the factors that have recently been strengthening the currency should remain supportive, we don't expect another significant leg up" as oil prices ease, said Shahrzad Fard, economist at Toronto-Dominion Bank, who thinks the loonie will pull back to the mid-90-cent range as the Fed starts hiking rates next year in the United States, whose currency has been weak.

It all leaves markets with a lot to chew on as Mr. Bernanke moves front and centre this week.

With files from Bloomberg News