US central bankers are expected to announce another steep interest rate hike on Wednesday as they try to prevent soaring inflation from becoming ingrained, but politicians are piling on the pressure in the final days of the midterm elections.

The Federal Reserve has embarked on an aggressive campaign to cool the economy this year as inflation surged to its highest rate in decades, squeezing the budgets of American families and propelling economic issues to the top of voter priorities.

To raise borrowing costs and lower demand, the central bank has cranked up the benchmark lending rate five times this year, including three straight hikes of 0.75 percentage points.

Many analysts expect the Fed to adopt a fourth straight three-quarter point hike on Wednesday, and all eyes are on signs that it could shift to a less hawkish stance in the coming months.

“There's a growing belief that the central bank will signal a desire to ease off the brake over the following few meetings,” said Oanda senior market analyst Craig Erlam in a note.

But it will be challenging for Fed Chair Jerome Powell to tell markets that the policy-setting Federal Open Market Committee (FOMC) has begun mulling a step down from its current path.

“Markets will likely interpret any comments about a downshift in tightening as dovish, signalling the end of the rate hiking cycle,” said economist Rubeela Farooqi of High Frequency Economics in an analysis.

And if inflation continues to remain strong, the Fed could press on with “a series of half-point hikes, rather than further slowing the pace of increases”, she added.

With its deliberations ending at midday, the FOMC is expected to announce its decision at 1800 GMT on Wednesday.

Powell's press conference after the meeting will be closely watched for clues on how much further he thinks the Fed must go before declaring victory in the inflation fight.

Political pressure

As central bankers walk a tightrope fighting inflation while avoiding tipping the economy into a recession, politicians are ramping up pressure on Fed officials amid growing worries of a downturn.

Senator Sherrod Brown, the Democratic chair of the Senate Banking Committee, urged the Fed last month to show commitment to its multi-pronged legal mandate — of promoting maximum employment, stable prices, and moderate long-term interest rates in the economy.

“For working Americans who already feel the crush of inflation, job losses will make it much worse,” Brown said in a letter to Powell.

Democratic senators including Elizabeth Warren also expressed concern this week over the Fed's rate hikes, as President Joe Biden's party faces growing voter frustration over high inflation.

“It may come too late to avoid a recession but the Fed has been very clear from the start that while a soft landing is the desirable and attainable outcome, getting inflation under control is the primary focus,” said Oanda's Erlam.

As higher rates take the heat out of economic momentum, there is likely to be “moderation in the labor market before a mild recession in (the first half of) 2023 brings about more marked change”, said economist Matthew Martin of Oxford Economics in an analysis.