The Federal Reserve is expected to feel pressure to continue raising rates. | Getty Fed seen kicking off Trump era with rate hike

The Federal Reserve is widely expected to raise interest rates on Wednesday for the first time in 12 months. But it's what the central bank signals for the next 12 months that has investors and policymakers on the edge of their seats.

The markets will be paying close attention to any hints about the central bank’s outlook for the economy under the stewardship of Donald Trump. Expectations of more rapid growth, coupled with the threat of inflation, could bring more rate hikes, which could undermine Trump’s plans to fire up the economy.


Economists see it as all but inevitable that the Federal Open Market Committee will announce a modest increase in the Fed's key borrowing rate after concluding a two-day meeting. The FOMC will release the decision at 2 p.m., and Fed Chair Janet Yellen will follow that with a news conference at which she will provide more color about the direction of the economy.

Fed officials have found reasons to hold off on tightening monetary policy since last December’s hike, after dramatically lowering rates to keep the economy moving in the wake of the Great Recession. That could change now.

“When history is written, the meeting will be the one in which liftoff actually began — a sustained period of interest rate increases,” Brookings Institution fellow Aaron Klein said.

Going forward, the Fed is expected to feel pressure to continue raising rates thanks to a period of sustained economic growth and low unemployment. The Labor Department’s first jobs report after Election Day showed that the economy added 178,000 jobs in November and the unemployment rate fell to 4.6 percent.

The Dow Jones Industrial Average is approaching 20,000 for the first time in history — a development that Yellen is sure to be asked about Wednesday.

“We’re more likely to have more rate increases than we’re expecting than to have fewer rate increases than we’re expecting,” PNC deputy chief economist Gus Faucher said.

A looming question hanging over the Fed will be how it reacts next year to the policies of the Trump administration.

Beyond making his own appointments to the Fed, which he has criticized, Trump and congressional Republicans are signaling plans for steep tax cuts and massive infrastructure investment.

Economists say that would raise the risk of inflation, which the Fed tries to combat to keep the economy from overheating.

“That will be the big thing for monetary policy in 2017, assuming there's fiscal stimulus,” Peterson Institute for International Economics senior fellow Joseph Gagnon said. “How much does the Fed have to respond?”