The Federal Reserve is expected to hike interest rates amid concerns about whether financial conditions will tighten abruptly if the central bank opts to lift rates faster in the new year amid new leadership.

“Typically, the prospect of Fed rate increases tightens financial conditions by pushing up borrowing costs for companies and governments, lifting the value of the U.S. dollar against its peers, and restraining a rise in the stock market,” the Wall Street Journal reported.

“But that hasn’t happened this time around. Two years into the Fed’s rate-rise cycle, stocks have been on a near-uninterrupted climb and longer-term Treasury yields have barely budged and lingered near the technically-important level of 2.4% for much of the past few months. The WSJ Dollar Index, a measure of the U.S. currency against 16 peers, is down 3% from its December 2015 level,” the Journal explained.

After today’s expected increase, the Fed will have lifted rates just five times in two years. By contrast, the Fed’s last tightening cycle stretched over a total of two years and included 17 increases.

Jerome Powell is expected to take the helm of the central bank in 2018, and could shift course, particularly with a new batch of policy makers expected to favor faster rate increases. If inflation begins to accelerate next year, the pace of rate increase could also pick up, economists say.

To be sure, Newsmax Finance Insider Hans Parisis is expecting two or three rate hikes in 2018 but warns that the central bank faces a formidable challenge, indeed.

"The more interesting question is 'policy' in 2018. With what we know so far, I still expect two or three rate increases from the Fed in 2018," Parisis wrote for Newsmax Finance.

"The point is that the Fed is trying to maintain a balance. It is not trying to weaken growth and it is not trying to lower inflation. It also isn't trying to destroy pricing power," he explained.

"However, raising interest rates will be necessary to maintain balance in the face of moderately increased inflation pressures."

Meanwhile, investors are showing the most confidence in nine months toward the prospect of higher interest rates next year,  Bloomberg reported.

The spread between January 2018 and January 2019 fed funds futures contract yields, a proxy for how many times rates will be raised next year, widened to half a percentage point on Tuesday for the first time since March, pricing two quarter-point increases. Back in September, investors weren’t even fully pricing a single hike, Bloomberg reported.

Updated FOMC interest-rate projections to be released Wednesday will probably show the median participant on the 16-member committee still expects three quarter-point rate hikes next year, as in September. But there’s a chance that number could move up to four, depending on how optimistic policy makers are feeling about the outlook for economic growth and inflation.

(Newsmax wire services contributed to this report).

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