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 The central bank, which hiked rates in December for the first time
in nearly a decade, sounded a cautious note at its last policy
meeting in January, amid a selloff on financial markets, weaker oil
prices and falling inflation expectations.
The Fed's latest policy statement, due to be released at 2 p.m. EDT
along with updated economic projections, will show how comfortable
policymakers are in proceeding with the gradual rate hike path they
embraced late last year.
Fed Chair Janet Yellen is scheduled to hold a press conference at
2:30 p.m.
In January, the Fed deferred altogether from characterizing the
risks facing the U.S. economy and its own policy outlook, as unease
grew over the potential spillover from slowing economies in China
and Europe.
But a recent batch of strong U.S. economic data, including
unexpectedly faster job growth in February, has eased fears that
those foreign headwinds, and the tighter financial conditions they
sparked, could derail the U.S. economy.
Inflation also has shown signs of stabilizing, with one measure
published by the Dallas Fed rising to 1.9 percent, just shy of the
Fed's medium-term 2 percent target. Furthermore, the unemployment
rate - at 4.9 percent in February - is near the level many Fed
officials believe represents full employment.
The European Central Bank's decision last week to further ease
monetary policy also may make the Fed more confident that action has
been taken to underpin growth in Europe, helping ensure a stalling
of the global growth drag on the home front.
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Given that the U.S. economy is continuing to grow and create jobs at
a respectable pace, analysts said the Fed's policy-setting committee
is likely to judge the risks as having become more balanced, paving
the way for rate hikes later this year.
"The center of the committee will likely recognize that the data do
not suggest any material slowdown in the U.S. economy and that
financial markets have stabilized, at least for now," said Roberto
Perli, an analyst with New York-based Cornerstone Macro LLC.
"The best course of action in this situation is to leave rate hikes
on the table at the next couple of meetings."
Fed policymakers' economic projections will include a fresh
assessment of where each one sees the federal funds rate to be by
the end of 2016 as well as forecasts for GDP growth, inflation and
unemployment.
The median rate hike projection after the December policy meeting
was for four quarter-point increases this year. That is expected to
drop to three or even two hikes on Wednesday.
Federal funds futures on Tuesday implied that traders saw a 50
percent chance the Fed would raise rates in June and an 80 percent
chance it would do so in December, according to CME Group's FedWatch
program.
A Reuters poll of economists last week gave a 60 percent chance of a
rate hike by the middle of this year.
(Reporting by Howard Schneider; Editing by Paul Simao)
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