* Fed likely to raise rates for third time in 2017
* Policy statement due at 2 p.m. EST (1900 GMT)
(Updates with inflation data in paragraph 9)
By Howard Schneider
WASHINGTON, Dec 13 (Reuters) - The Federal Reserve is widely
expected to raise interest rates on Wednesday, but, more
significantly, it may give its strongest hint yet on how the
Trump administration's tax overhaul could affect the U.S.
Investors will pay close attention to how the central bank
aims to balance a stimulus-fueled economic boost with the
ongoing weak inflation and tepid wage growth that has curbed
some policymakers' appetite for higher rates.
The Fed's policy statement and its latest economic
projections are due to be released at 2 p.m. EST (1900 GMT)
following the end of a two-day meeting. Fed Chair Janet Yellen
is scheduled to hold a press conference half an hour later. It
will be her last before her four-year term ends early next year.
Her successor, Fed Governor Jerome Powell, said at his
recent confirmation hearing before a Senate panel that he had
"no sense of an overheating economy," an early signal he may not
want to quicken the pace of rate increases until there is
evidence of an acceleration in wage growth and inflation.
The Fed has increased rates twice in 2017 and is currently
expected to push through three more hikes next year.
Much of Yellen's tenure as Fed chief has been defined by a
desire to leave loose monetary policy in place as long as
possible in the hope that unemployment continued to decline,
workers rejoined the labor force, and wages rose.
Powell, who has worked closely with Yellen, said he feels
that process still has room to run.
Recent bullish data, highlighted by continued solid job
gains and a jump in economic growth, has prompted some analysts
to speculate that the central bank's new projections will
reflect an expectation of four rate increases next year.
There are also signs inflation may be firming after a
lengthy bout of weakness, though data released by the Labor
Department early on Wednesday showed some unexpected weakness in
Fed policymakers have been stymied at how price rises have
remained persistently below the central bank's 2 percent target
despite labor market strength and a growing economy.
President Donald Trump's proposed tax plan, including a
sharp reduction in the corporate income tax, could further boost
the U.S. economy if it passes the Republican-controlled
Congress, as appears likely.
In a recent note projecting four Fed rate increases next
year, Paul Ashworth, U.S. economist for Capital Economics, said
"the stimulus could provide cover for the Fed to normalize
interest rates at a faster pace than it otherwise would have
been able to."
What Ashworth called a "badly timed" tax cut "would be
expected to raise inflation as much as it boosted real GDP
growth," he said.
(Reporting by Howard Schneider; Editing by Paul Simao)
First Published: 2017-12-13 08:00:00
Updated 2017-12-13 17:00:30
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