The Federal Reserve is poised to soften its aggressive tightening, signaling that interest rates will eventually rise higher than previously forecast.
The hard part for Fed Chairman Jerome Powell will be convincing investors that this is not a dovish pivot and that officials will not prematurely end their attack on inflation, which is three times their 2% target.
The Federal Open Market Committee is expected to raise rates by 50 basis points and bring its target rate to a range of 4.25% to 4.5%, the highest level since 2007. Fresh quarterly economic forecasts released after the meeting will also shed light on how much further policymakers expect rate cuts.
The dollar index meets the Fed meeting at half-year lows:
Economists see that median estimate peaking at 4.9% after Powell said they would need to raise rates higher than previously expected. That means the FOMC will move to 25 basis points in February and March and then pause policy. Investors see things the same way, judging by current prices in the interest rate futures markets.
The consumer price data released on Tuesday suggests that the worst pace of U.S. inflation may be behind us, and it would be easier for officials to move to a lower rate hike this week. But Powell could use his press conference to remind the public that officials are not going to give up until inflation is clearly down to 2%.
At their September meeting, Fed officials said rates would reach 4.6% by the end of next year. But policymakers say those expectations have since risen after economic data showed that while inflation is falling, it remains stubbornly high.
Officials also say the labor market's too strong and supply and demand too unbalanced for the Fed to let its guard down.
The projections will give an indication of policymakers' latest views on where they think rates will go. But the Fed chief is unlikely to take any particular path, preferring to leave his options open.
