[WASHINGTON] The Federal Reserve opened its two-day policy meeting on Wednesday, with central bankers widely expected to hold their fire but likely to signal a December rate hike.

The meeting is happening as the dust settles from Tuesday's midterm elections, which left Democrats in position to curtail President Donald Trump's ambitions for economic policy.

The Fed is not expected to raise the benchmark interest rate this week but central bankers are likely to focus on rising wages for US workers, which suggest a decade of job creation and falling unemployment are at last pushing up pay and raising the odds of faster inflation.

That puts the Fed on pace to continue raising rates, with a fourth increase expected this year and three more in 2019.

Central bankers want to prevent the world's largest economy from overheating as unemployment flirts with 50-year lows and GDP growth is juiced by tax cuts and fiscal stimulus in the 10th year of recovery from the 2008 global financial crisis.

As ever, investors will be closely watching the policy statement on Thursday for signals about the Fed's thinking and its next move.

However, University of Oregon economist Tim Duy told AFP he did not expect the statement to be blunt about plans for December.

"I don't think they are going to give some clear signal about the next meeting," he said.

"They're trying to reduce the financial markets' dependence upon these statements and focus market participants on the actual economic outcomes."

According to minutes of the October meeting, members of the rate-setting Federal Open Market Committee saw no reason to alter the gradual pace of rate hikes, and may need to slow the economy in the near future.

TRUMP BASHES THE FED

Since the last Fed meeting, government statistics showed average hourly worker pay rose at the fastest pace in nearly a decade.

Though inflation so far has held steady, right around the Fed's two per cent target, central bankers worry that rising wages will push prices higher as well.

Meanwhile, the economy has shown no signs of weakening, even though some economists say it may have peaked.

GDP expanded at a 3.5 per cent clip in the third quarter, manufacturers have remained bullish despite complaining increasingly of the effects of President Donald Trump's trade wars and consumer confidence is at an 18-year high.

Still, some signs of weakness have begun to emerge: the housing market has stalled, retail spending has softened and the trade deficit has continued to swell.

As economists project the US economy will slow in 2019, Mr Trump in recent weeks has attacked the Fed as a danger to growth, raising the prospect he will blame the central bank for any possible recession.

Diane Swonk of Grant Thornton said the central bank was trying to fine-tune the economy so that it can continue to grow without igniting inflation.

Rather Fed officials "are trying to pace us so that we can extend the length of this marathon we are now running," she said in a research note.."

But that fine tuning is difficult and as many economists have pointed out, virtually every Fed tightening cycle has ended in an economic downturn. The Fed has raised interest rates eight times since December 2015.

AFP