(Reuters) - The Federal Reserve is preparing to consider interest rate hikes "on a meeting by meeting basis," Fed Chair Janet Yellen told a congressional committee on Tuesday in a subtle change of emphasis in how the Fed has been speaking about its plans for the first interest rate increase since 2006. KEY POINTS: * In prepared remarks to the Senate Banking Committee Yellen described how the Fed's rate-setting policy committee will likely proceed in coming months - an effort to increase the Fed's flexibility and mute any potential market reaction as the central bank approaches its "liftoff" date. * The committee will first drop the word "patient" from its statement, part of a phrase used since December to describe the Fed's approach to the timing of an initial rate hike, Yellen said. COMMENTS: JOHN VAIL, CHIEF GLOBAL STRATEGIST AT NIKKO ASSET MANAGEMENT IN NEW YORK: "We still think it is June/July (for an interest rate hike). We have been saying that for a year now. Nothing that she has said changes that, but there is still flexibility in her statement. "We think it is going to be very tiny increments when they do start hiking. We're talking about 12.5 basis points instead of the normal 25 basis points. That might be called for as there is a great unknown what will happen when they start raising rates and they want to do it pretty softly. "It is a relatively muted market reaction. She is not going to change anybody's mind." DAN MORRIS, GLOBAL INVESTMENT STRATEGIST, ASSET MANAGER TIAA-CREF, NEW YORK: “The message is looking more like September than June. The thing that they’ve reiterated every time is that it’s going to be data dependent, so in some ways it’s pointless to prognosticate too much on when it’s going to be because if you somehow or other did get stronger wage growth over the next couple of months, which I think is not a totally implausible scenario, then you would move in June. “If inflation stays subdued, if growth stays where it is, if the dollar keeps doing what it’s doing, yeah, they’re not going to see any reason to raise because the data is not going to justify it. Of those data points that could change, the most likely one would be the dollar, because a lot of it comes down to how tight you think the labor market is, and we think it’s tighter than some of the numbers indicate and even some of the numbers that she talks about. “We got these really great payroll numbers for last month. Let’s say that continues, which is possible. The reason we think it could feed into wage inflation, in particular, is you look at the wage participation number, the way the government calculates it and this is what gives you the impression the participation rate is so low, which suggests there is a lot of idle labor out there. It’s because in that number you’ve got basically all the baby boomers that have retired. In the government’s calculation they’re assuming those retired baby boomers are ready to leap back into the labor force as soon as the minimum wage goes up, and that’s not going happen. "So if you strip out the retirees, and look at people who are of actual working age and not retiring age, you get that the participation rate isn’t quite so low. So there is this scenario under which the market is tighter than people think, if you get another couple of months of job creation like we’ve seen, you start seeing wage pressures and then that would advance the date they could conceivably raise rates." MILTON EZRATI, SENIOR ECONOMIST AND MARKET STRATEGIST AT LORD ABBETT IN JERSEY CITY: "Yellen is preparing the ground for a rate increase but not ready to commit to an exact time. This is the pattern that she has been displaying for quite some time. "She painted a pretty upbeat picture of the U.S. economy and implied that would give her room to raise rates. She has used the word normalization. We at Lord Abbett think that is very important. The Fed is not leaning against the wind, which is the typical thing. They are trying to get out of the box they made for themselves in dealing with the crisis. "She is really eager to do this even if the economy is not that strong." MICHAEL HANSON, SENIOR ECONOMIST AT BANK OF AMERICA MERRILL LYNCH IN NEW YORK: "I read it as they are trying to maintain maximum flexibility. It sounds to me like a June rate hike is still on the table. But there is definitely an attempt to try to disconnect the changes in language from signaling definite changes in policy. "A little more emphasis on the inflation outlook as being sort of the key to the decision. She is still largely towing the line that they are seeing inflation temporarily low and it is going to pick up. But I think that is a very active area of debate in the committee. Certainly the minutes suggest there is a range of views there. "Our base-case is still September because we think the inflation outlook will not be good enough come June to make the Fed comfortable to pull the trigger then. But it is still on the table based upon what I have heard today. "The market has been jerking itself around here. It is a relatively balanced discussion on the whole. The market has generally been expecting, or at least my reading of what a lot of people are saying, is that here comments are likely to be a little bit more hawkish if anything, particularly as the minutes were read as probably more dovish than they were." DAN FARLEY, REGIONAL INVESTMENT STRATEGIST AT U.S. BANK WEALTH MANAGEMENT IN MINNEAPOLIS: “Threading the needle is really what they need to do. You see so much conflicting data coming about between the minutes and public statements that have been made. They are really trying to walk that fine line between not spooking the market and giving themselves the flexibility they need to be a little bit more data dependent and figure out, really, what does this mean. That patient language is actually beginning to cause some issues for them and she may be trying to unwind that a little bit in this showing.” LOU BRIEN, MARKET STRATEGIST AT DRW TRADING IN CHICAGO: "This text goes along with the recent FOMC statements and some of the elaboration she gave in the post-meeting press conference in December. She played it very close to the vest and that is what she wanted to do. "In relation to what we knew going in from the FOMC statements, it's a flat-line. The fact there is still the anticipation that they will raise rates later this year is hawkish. Where she could have been dovish, she wasn't. She doesn't want to give too much guidance on timing away and she didn't stress data dependence, which would have been more dovish." TODD SCHOENBERGER, MANAGING PARTNER OF LANDCOLT CAPITAL LP IN NEW YORK: "The key is to look at what Yellen isn't saying, and what she's not saying there will be a hike in rates anytime soon. I'm surprised the market just isn't going to the moon right now. It seems clear that rates will be intact for the foreseeable future. I've been saying 2016 is when we should expect the first hike and I don't see anything to change that. We're at least a year away. "We have a rising market, and while the recovery has been benign we are seeing growth. Corporate earnings have been slowing, admittedly, but jobs are decent. The item that's key is inflation. We don't see wage inflation, and in a subdued inflation environment, there's no rational reason for the Fed to raise rates." BORIS SCHLOSSBERG, MANAGING DIRECTOR OF FX STRATEGY, BK ASSET MANAGEMENT, NEW YORK: “The market might be looking through her testimony. The testimony is not giving any concrete timing on the timing on a rate hike. It’s very cautious and very couched. She’s leaving all her options open as she should be. She is clearly acknowledging the economy is doing better. The labor market is improving. The Fed is moving closer to normalization than the last time she appeared. She didn’t categorically dismiss the idea of a June rate hike. It doesn’t mean she is committed to it either. She is trying to temper market expectations. "She doesn’t want the dollar to strengthen further. She wants to control the dollar rally before it gets out of hand as other central banks are easing and the global growth remains weak; 120 yen on the dollar is very important technically and psychologically. In Q&A, the most interesting aspect on the conversation could be on the labor market and wages. That’s the big anchor on normalization. To really feel confident toward normalization, the Fed wants to see some inflation bubbling up especially in wages. June is likely off the table and we are probably looking at September for a rate hike.” THOMAS SIMONS, MONEY MARKET STRATEGIST AT JEFFERIES & CO IN NEW YORK: "It's pretty evenhanded. She's talking about how 'patience' may come out of the statement but, even if it does, it does not mean we should expect rate hikes in a few meetings. She continues to highlight the underutilization of resources in the labor market and sluggish inflation in wage growth. Generally, she is trying to increase flexibility in policy and forward guidance and doesn't want to be nailed down as hawkish or dovish. The choppy market reaction indicates she succeeded in that because we are having a hard time interpreting that." BRIAN DOLAN, HEAD MARKET STRATEGIST, DRIVEWEALTH LLC, CHATHAM, NEW JERSEY: "I would suggest that Yellen is still keeping a very open mind, still in no hurry to give a signal that a rate hike is imminent. If anything, she's laying the groundwork in terms of indicating that they're going to change the forward guidance at least one meeting prior to hiking rates for the first time. I would say this targets the September meeting as the first lift- off. "Overall, Yellen is definitely still on the dovish side. The fact that she's highlighting the risks from abroad as significantly as she did is telling. They're still very much assessing the global outlook and the risks are all on the downside there." (Americas Economics and Markets Desk)