The Federal Reserve meeting: Five things to watch for

WASHINGTON -- Is it taper time for the Federal Reserve?

That's the key question as the financial and economic worlds await the end of the central bank's policymaking meeting Wednesday and Fed Chairman Ben S. Bernanke's quarterly news conference.

The central bank's Federal Open Market Committee will release its policy statement at 2 p.m. EDT. Thirty minutes later, Bernanke will sit behind a custom-made desk to detail the committee's actions and reporters' answer questions.

QUIZ: How well do you understand the Fed stimulus?

There's great attention on the Fed as Bernanke heads into the final months of his second term as chairman.

Washington has been buzzing with speculation about his successor. A strong liberal backlash to the top contender, former Treasury Secretary Lawrence H. Summers, led him to surprisingly withdraw from consideration on Sunday.

The move left the other leading candidate, Fed Vice Chair Janet L. Yellen, as President Obama's likely choice to lead the central bank as it tries over the next couple of years to end its stimulus efforts without damaging the economic recovery.

Meanwhile, Wall Street and financial markets have been anxiously awaiting the Fed's decision on reducing its year-long bond-buying stimulus program.

Interest rates shot up after Bernanke said in May the Fed could begin tapering the $85 billion in bond purchases within a few months. And all eyes were focused on the Fed's September meeting as the probable date when such a move would be announced.

Here are five things to watch for from the Fed and Bernanke on Wednesday.

1. Will the Fed taper?

There's broad expectation that the Fed will vote to start tapering its bond purchases Wednesday. Given that's what the financial markets are anticipating, the Fed is likely to go forward to avoid rattling investors.

"You’ ve created the volatility, you’ve built the expectations," said Gary Schlossberg, senior economist at Wells Capital Management, who predicted the tapering would begin Wednesday. "The market has begun to price in the possibility of an extended pullback."

But Bernanke and other Fed officials have said they would move only if the economy continued to recover as they expected. And recent economic data suggest the economy might not be picking up in the second half as forecast.

In addition, fights in Washington over the federal budget and the debt limit pose a risk to economic growth and could give the Fed pause.

Still, the Fed has made clear that even if it does start reducing its bond purchases, it could increase them again. So moving forward, particularly with a slow taper, has little downside.

2. If the Fed does taper, how much will it pull back?

Because of the continued uncertainty about the economy, the Fed probably will start with a small reduction. 

"I think they want to say, 'We're starting,' but not start very fast," said John Makin, a monetary policy expert at the American Enterprise Institute, a Washington think tank.

He said the Fed might do just $10 billion a month less in purchases.