By Howard Schneider
REUTERS - The Federal Reserve will conclude its two-day policy meeting on Wednesday with an interest rate increase all but assured and issue new forecasts assessing whether the economic outlook has changed since Donald Trump won the White House.
The latest policy statement and projections are to be released at 2 p.m. ET (1900 GMT) with a press conference by Fed Chair Janet Yellen following at 2:30 p.m.
Financial markets dipped on Wednesday as new U.S. data showed weaker than expected retail sales and a drop in industrial production last month.
Major U.S. stock indexes were off highs that took the Dow Jones industrial average near the 20,000 level on Tuesday - the index has increased just under 10 percent since Trump's Nov. 8 victory.
U.S. 10-year and 30-year bond yields also declined ahead of the Fed's decision on Wednesday.
Andrew Hunter, U.S. economist with Capital Economics, attributed the "trivial" 0.1 percent increase in retail sales as "partly some payback" for recent strong results, and not evidence that consumer demand was weakening overall.
Markets overall are poised for the federal funds rate to rise to a target range of between 0.5 and 0.75 percent from the current range of 0.25-0.5 percent, an alignment of expectations that gives the U.S. central bank another reason to act.
All 120 economists in a recent Reuters poll expect a rate hike.
The last rate increase was a year ago when the Fed moved rates from the zero lower bound reached during the 2007-2009 financial crisis.
TRUMP IMPACT
Of more significance on Wednesday is the backdrop of the meeting. After years of the Fed fretting about low interest rates and weak inflation, the weeks since Trump's victory have seen bond yields and inflation expectations start to rise.
Details of policymakers' new economic assessments, the first since the election, will be dissected closely to see whether the economic outlook or the risk of inflation has shifted as a result of the incoming Trump administration.
The president-elect has said he wants major tax cuts and an infrastructure spending program, even as the economy approaches full employment and wages are rising.
"Inflation risks are more significant than they were three months ago," when the policymakers issued their last forecasts, said Carl Tannenbaum, Northern Trust's chief economist. "Rates could well rise more than anticipated."
Despite the changed circumstances, it is not certain the Fed will budge on its assessments. Policymakers' median forecast as of September was for two interest rate increases in 2017, an outlook Tannenbaum and many analysts feel may remain the case.
Any of Trump's proposals would have to clear a Republican-controlled Congress that may be stricter about increasing public debt than Republican businessman.
In recent public appearances some Fed officials have said they see a chance his policies may force them to speed the pace of rate increases. Yet they also have said they are hesitant to change their outlook before more details are shared.
"Investors who are looking for clarity may be disappointed," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.
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