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The Fed is scheduled to announce its monetary policy decision at 1800 GMT on Wednesday at the end of a two-day policy meeting, followed by a press conference by U.S. Federal Reserve Chair Janet Yellen.

Yellen's four-year term as chair expires on February 3.

Together with the decision to raise interest rates, the moves signal officials believe the economy will keep growing and the job market will stay healthy as the central bank withdraws support. Top White House economic adviser Gary Cohn said earlier this month the administration hadn't yet focused on the question. But there are also expectations of tweak in the Fed's outlook to reflect a weaker run of data since the start of the year.

However, in the absence of any shocks, the rate-setting committee's statement said it expected to implement one further rate hike in 2017 and signalled it would begin to unwind its massive asset purchase, or quantitative easing, programme later in the coming months.

But they downgraded their expectation for inflation to 1.6 percent this year. First, the Fed's Economic Projections will detail forecasts of inflation, growth and unemployment, and most importantly, the rate hike path. Fed officials reiterated their belief that that both inflation and economic growth will pick up.

Though investors have pegged the likelihood of a rate increase Wednesday at near 100 per cent, there's much less certainty about the prospect or timing of any further hikes.

The Fed's key interest rate will now hover in a range between 1% and 1.25%.

Following the outbreak of the crisis in 2007 the federal funds rate swirled downwards from 5.25 percent in August 2007 to 0.25 percent in December 2008, in order to stimulate the markets after the ferocious crash.

"For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month".

The pan-European FTSEurofirst 300 index lost 0.18 percent and MSCI's gauge of stocks across the globe gained 0.18 percent.

Fed officials have concluded that the economy, now entering its ninth year of expansion, no longer needs the ultra-low borrowing rates they supplied beginning in the Great Recession.

"But what is more anticipated are the accompanying materials, like the Fed's latest forecasts on inflation, employment and the "dot plot" forecasts of where the Fed sees policy rates from here", he said.

A noted labor economist, Yellen is pinning her hopes on an ever-tightening job market eventually lifting wages and inflation - a relationship quantified in the so-called Phillips Curve that was first developed nearly 60 years ago. The inflation measure the Federal Reserve tracks is now at 1.5%, while the central bank's target is at 2%.

In response to the Fed rate hike and portfolio plan, short-dated Treasury yields rose from earlier lows while longer-dated yields also rebounded.

A retreat in inflation over the past two months has caused jitters that the shortfall, if sustained, could alter the pace of future rate hikes.


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