James Knightley, Chief International Economist at ING, does not expect the Fed to make changes to its policy stance at this week's meeting, but its governor Jerome Powell will provide an update on how the Bank's policymakers see the outlook for the economy in the wake of new fiscal stimulus and the vaccine roll-out.

"At the last FOMC meeting on December 16th, two days after Covid vaccinations started in the US, the Fed remained cautious on the economic outlook. They stated that the pandemic “poses considerable risks to the economic outlook over the medium term” and their updated forecasts continued to suggest that interest rates wouldn’t likely rise until 2024."

"The newsflow since that meeting has been positive on the medium to longer term, but undoubtedly more negative in the very near-term given clear signs of a loss of economic momentum."

"The medium-term outlook has improved though with the Democratic Party winning both Senate seats in the Georgia run-off elections, emboldening President Biden to go big with a proposed $1.9tn fiscal support package following hot on the heels of the $900bn December deal."

"Meanwhile, the vaccination program is making progress with, as of January 22nd, nearly 5% of the population having received at least one dose of the Covid-19 vaccine. With more resources and better planning this will be stepped up with a realistic possibility of a re-opening getting underway in the second quarter."

"Inflation is also becoming a more significant theme with both market and consumer inflation expectations having pushed higher in recent months."

"We believe the Fed will leave monetary policy unchanged on Wednesday with the Fed funds target rate range staying at 0-0.25% with the Quantitative Easing program maintained at $80bn of Treasuries and $40bn of Mortgage-Backed Securities. However, it will be interesting to see how the Fed interprets the outlook."

"A greater probability of substantial fiscal stimulus and robust asset markets and clear progress with more resources being devoted to the Covid-19 vaccination program should be taken positively. Then throw in the increase in inflation expectations and the Fed will be encouraged that perceptions of the economic outlook are improving."

"We suspect the Fed will retain a cautiously optimistic tone at the press conference while seeking to downplay the prospect of any meaningful change in Fed policy anytime soon."