Analysts expect the Fed to do nothing this week as it waits to see which policies the new Trump administration approves and how they might affect the US economy.

"I think the Fed sits on its hands," Moody's Analytics chief economist Mark Zandi told AFP.

"Until there's more clarity -- or any kind of clarity -- around the economic policies of the Trump administration, the Fed is going to be reluctant to move," he added. 

The US central bank has a dual mandate from Congress to tackle both inflation and unemployment, primarily by raising or lowering its benchmark short-term lending rate which influences borrowing costs for consumers and businesses.

The US economy is going fairly well with robust growth, a more-or-less healthy labor market, and relatively low inflation which nevertheless remains stuck above the Fed's long-term target of two percent.

The Fed's rate-setting Federal Open Market Committee (FOMC) voted to lower its key lending rate by a full percentage point between September and December 2024 to between 4.25 and 4.50 percent.

Futures traders overwhelmingly expect the Fed to remain on pause this month, and assign a probability of close to 70 percent that it will extend its hold at the next rate meeting in March, according to data from CME Group.

- 'Definitely inflationary' -

Since returning to office on January 20, Trump has revived his threats to impose sweeping tariffs on US trading partners as soon as this weekend and to deport millions of undocumented workers. 

He has also said he wants to extend expiring tax cuts and slash red tape on energy production.

Last week, Trump revived his criticism of the Fed and its chair Jerome Powell, whom he first appointed to run the US central bank.

"I'll demand that interest rates drop immediately," he said, later adding that he would "put in a strong statement" if the Fed did not take his views on board.

"I think I know interest rates much better than they do," he added. "And I think I know certainly much better than the one who's primarily in charge of making that decision."

Most -- though not all -- economists expect Trump's tariff and immigration policies to be at least mildly inflationary, raising the cost of goods faced by consumers. 

"I think those policies are definitively inflationary, it's just a question of what degree," said Zandi from Moody's Analytics.

"A big part of (the Fed's) job in calibrating monetary policy is responding to what lawmakers are doing, and if they can't get a fix on what they're doing, then that just argues for no change in policy, either higher or lower rates," he added.

- 'Meaningful odds' -

At the Fed's previous meeting, policymakers also dialed back the number of rate cuts they expect this year to a median of just two, with some incorporating assumptions about Trump's likely economic policies into their forecasts, according to minutes of the meeting.

Given the uncertainty, analysts are now divided over how many rate cuts they expect the Fed to make this year. 

In a recent investor note, economists at Goldman Sachs said their baseline forecast was for two quarter point cuts, assuming a mild, one-time effect on inflation, "causing it to fall by less but not to rise and leaving the door open to rate cuts."

"We retain our baseline that the FOMC will cut rates 25bp (basis points) this year, in June," economists at Barclays wrote, pointing to the underlying strength of the economy.

Zandi from Moody's Analytics said he also expects two rate cuts later in the year. 

But, he added, "there are meaningful odds that the next move by the Fed may not be a rate cut, it might be a rate increase."