The US economy has recovered enough from the pandemic for the Federal Reserve to begin easing up on stimulus, but markets are focused on whether central bankers will change course Wednesday and express greater concern about inflation.
With widespread vaccinations even for children and the Delta wave appearing to abate, data shows jobs are recovering and American consumers spending freely.
But supply snarls have created hiccups in manufacturing and shipping, which has seen prices rise, notably for oil, cars and housing, while demand for workers is starting to drive wages up in the world's largest economy .
More economists are warning that Fed Chair Jerome Powell has been too complacent about the inflation risk, and urging him to change his tune.
At the conclusion of its two-day policy meeting at 1900 GMT, the Fed is expected to announce that it will begin to reduce the huge bond purchases it launched at the start of the Covid-19 pandemic to prevent a financial collapse.
Powell, who has called recent inflation pressures "transitory" and said they would dissipate once the pandemic's impact on the supply chain is sorted out, is due to hold a press conference after the meeting where he could update his view.
Dana Peterson, chief economist at The Conference Board, said there are signs Powell already has begun to alter his thinking.
"So I think the Fed is starting to come around, and certainly we'll see that, hopefully, in today's statement," Peterson told reporters Wednesday.
A change in tone reflecting a view that inflation pressures are more persistent or more elevated than expected could cause markets to expect the Fed to raise interest rates sooner or more aggressively, she said.
- Faster rate hikes? -
The Fed's policy-setting Federal Open Market Committee (FOMC) slashed the benchmark borrowing rate to zero in March 2020 just after the pandemic arrived on US shores, causing widespread business shutdowns, and then began buying $80 billion a month in Treasury bonds and at least $40 billion in agency mortgage-backed securities.
Those steps, along with other credit programs and massive federal aid, have helped the US economy bounce back faster than most.
The central bank has signaled it will reduce the pace of monthly bond purchases, and Powell has said the Fed could move faster if needed and if inflation becomes a greater concern.
While the labor market is improving -- payroll services firm ADP reported private firms hired 571,000 workers last month -- the Fed's preferred inflation measure hit 4.4 percent over the 12 months ending in September, more than double its target level.
While the European Central Bank has kept its stimulus in place, other central banks have begun to tighten policy amid rising prices, and the Bank of England might do so on Wednesday.
Economist Mickey Levy of Berenberg Capital Markets said companies are raising prices in anticipation of higher inflation, which means the Fed will have to act more aggressively.
"Inflation is a bigger challenge than the Federal Reserve acknowledges. It has already risen dramatically, and it is suppressing real wages," he said in an opinion column Sunday.
"The Fed must acknowledge that its monetary policy has been a source of inflation, and that it will need to raise interest rates more quickly than it presumed."