Is the Fed setting the stage for a June hike?

When Federal Reserve Chair Janet Yellen and her colleagues gather this week, few observers expect an interest rate hike to follow. Investors will instead be looking at the Fed's statement when the meeting concludes on Wednesday to see if a move is likely at the next Federal Open Market Committee (FOMC) meeting in June.

"This meeting and the statement are more about whether they raise in June or not," said Jim Russell, a principal and portfolio manager at Bahl & Gaynor. "There's very little likelihood that there's action to be announced later this week."

Since increasing rates from ultra-lows in late 2015, the central bank has held off on further hikes amid a struggling global economy and as U.S. inflation remains below the Fed's 2 percent target rate. Still, a sturdy labor market and rising home and stock prices argue for another hike by the Fed, which in December ended a seven-year period in which it held benchmark rates near zero.

"June is a pretty solid bet right now," said Hugh Johnson, chairman of Hugh Johnson Advisors. "But, as Janet continues to warn us, it's all data-dependent. What's going to happen in if the April employment report is soft?" asked the longtime investment strategist. Johnson added that recent data from the New York and Philadelphia Feds "suggest the April number might not be as good as forecasters are expecting."

Johnson for one expects a very guarded statement to come out of the Fed's two-day meeting that ends Wednesday afternoon. "Keep in mind (Fed members) want to normalize interest rates," said Johnson. "Rates are too low, and if the economy gets in trouble, there is no room to reduce them, so they are anxious to get them back up there."

U.S. economic growth seems to have sputtered in the first quarter after climbing a scant 1.4 percent in the final three months of 2015, and it could be awhile before the Fed gets a handle on whether the economy has hit a brief speed bump or is facing something worse.

The government's first estimate of U.S. first-quarter GDP growth comes Thursday, with many economists expecting the reading to come in below 1 percent.

Lower energy costs and a stronger dollar have held inflation under what the Fed would prefer, while the unemployment rate is at or near what the Fed views as full employment.

"We expect no action this time, and we're watching for how the statement is written as it might provide clues as to whether June is in play or not," said Bahl & Gaynor's Russell. "Global economic volatility and weakness, oil and currency fluctuations are all things that in the past the Fed has indicated as global concerns that it would like to see moderate before taking rates higher."

Those issues, Russell said, have moderated, and what would be telling is whether the Fed opts to reinsert previous language talking about the "balance of risks, between growth and inflation," which he believes would point to a likely rate increase in June.

"I think the economy will strengthen as we go through 2016, but I don't say that with a lot of confidence," said Johnson. "It looks to me as though we're going to be stuck at 2 percent to 2.5 percent growth for the foreseeable future."