Fed expected to raise rates, keep forecast

The Federal Reserve is all but certain to raise interest rates Wednesday. That would mark its third hike this year but just its fifth since the economic recovery began in 2009.

More drama surrounds Fed forecasts for 2018. Will policymakers predict that inflation will finally pick up and the Republican tax-cut plan will juice economic growth? And will that outlook lead Fed officials to project more rate increases next year than the three they forecast in September?

Morgan Stanley and Oxford Economics believe the Fed will stick to its previous estimate of three hikes next year.

The Fed’s preferred measure of annual inflation rose to 1.6% in October from

1.4% in August amid a hurricane-induced bump in gasoline prices. A reading of core inflation that excludes volatile food and energy items ticked up to

1.4% from 1.3%.

Both measures are below the Fed’s

2% target, but they’re moving in the right direction. Plus, most Fed policymakers place more emphasis on the low unemployment rate, which should eventually speed up wage and price increases as employers compete for fewer workers.

Yet with inflation still sluggish, there’s little need to anticipate more rate increases.

The tax cut legislation is the other big variable. It seems to be on the verge of passage, but many economists say it will boost growth modestly.

Bottom line: Economists expect the Fed to continue to project moderate economic growth and a gradual rise in inflation and interest rates.