The Fed will release its policy statement at 2 p.m. ET. Most of the focus is likely to center on Chairman

Jerome Powell’s

news conference at 2:30 p.m. Here’s what to watch:

Marching On

The Fed slashed interest rates to near zero in March 2020, when the coronavirus pandemic upended global commerce. In September 2020, Fed officials said they would hold rates there until inflation was forecast to moderately exceed 2% and until the labor market returned to levels consistent with maximum employment.

The Fed could use its postmeeting statement on Wednesday to declare it has essentially met both goals. Using the Fed’s preferred gauge, inflation surged last year, to 4.7% in November from a year earlier, excluding volatile food and energy categories, easily surpassing the first objective. Most Fed officials have suggested that the sharp drop in unemployment in the second half of last year, to 3.9% in December, together with strong wage growth has nearly achieved the second goal.

Such an acknowledgment would allow the Fed to provide its clearest signal yet that it is prepared to raise interest rates by a quarter percentage point at its meeting March 15-16.

Pressure Points

Mr. Powell is likely to be pressed on his inflation outlook, which could shape how many times the Fed lifts rates. He provided his latest thinking in testimony on Capitol Hill this month, where he said inflation is high because supply and demand are out of whack.

The Fed can’t solve shipping or supply-chain bottlenecks, but higher interest rates can eventually cool demand by slowing hiring and income growth. Officials are hoping that inflation declines as the supply problems ease and demand shifts from goods, where prices rose sharply last year, toward services, where inflation has been less extreme.

Central-bank officials last month penciled in three quarter-percentage-point interest rate increases this year and three more next year. They based the projections for the increases on a forecast that sees inflation falling below 3% by December and to slightly more than 2% by the end of next year.

Still, several officials have stressed that there is great uncertainty around that forecast, and investors are hungry for clues about how the Fed would react if inflation looks likely to stay above 3% around the end of this year.

Rate Guidance

Given the uncertainty, officials will also have to debate whether to offer any meaningful forward guidance, the words they use to describe their intentions for interest rates over the next few years. Forward guidance has been an important part of the Fed’s monetary-policy arsenal for most of the past two decades, a period in which inflation and interest rates have generally been low.

The Fed first relied on such conditional promises—often cloaked in adjectives that became fraught with significance—in the early 2000s. Before commencing rate rises in 2004, the Fed said such increases were likely to proceed at a “measured” pace. In 2015, the Fed prepared markets for an even milder path of rate rises by telegraphing such increases would be “only gradual.”

The economic environment today—one with much greater uncertainty about how labor markets, wages, and inflation will unfold—may limit the types of clues or assurances the Fed can provide.

In addition, Mr. Powell could face questions over the prospects for rate rises at consecutive meetings, held roughly every six weeks—something the central bank hasn’t done since 2006—or for larger, half-point rate increases. The Fed hasn’t done that since 2000.

Asset Purchases

After the Fed cut rates to near zero two years ago, it started buying Treasurys and mortgage-backed securities to provide additional stimulus. Officials began decreasing those purchases last November, and in December quickened the wind-down of the bond buying. They are likely to approve one final tranche of purchases at their meeting this week while signaling that this would conclude the expansion of the Fed’s holdings by March.

Asset Reductions

Officials are likely to receive briefings from Fed staff on proposals to begin shrinking their nearly $9 trillion bond portfolio. Mr. Powell and his colleagues have suggested that this process is likely to start sooner than it did after the Fed stopped buying bonds in 2014. They have also indicated that the process of shrinking those holdings—by allowing securities to mature without reinvesting their proceeds into new ones—is likely to proceed faster than it did the last time the Fed reduced its holdings in 2017.

It is possible officials could release high-level principles to guide investors around how the Fed will manage its asset portfolio after the holdings stop increasing in March, but officials are unlikely to release more specifics about how the reduction would proceed. Mr. Powell has said it could take another two or three meetings to firm up such plans, suggesting the process is likely to start no sooner than the middle of the year.

Several Fed officials, including Mr. Powell, have indicated that they want adjustments of the Fed’s short-term benchmark interest rate, the federal-funds rate, to be the primary way that the central bank responds to changes in the economic outlook. This means they are likely to again prefer a path for unwinding their asset holdings that runs on a premapped schedule once they have raised rates somewhat.

Write to Nick Timiraos at nick.timiraos@wsj.com