The Federal Reserve is on track to raise its benchmark interest rate for the 10th time on Wednesday, the latest step in its yearlong effort to curb inflation with the fastest pace of hikes in four decades.

Yet economists and Wall Street traders will be more interested in what the Fed and Chair Jerome Powell signal in a statement and at a news conference about what comes next — a question with implications for not just the U.S. economy, but Canada’s as well.

Economists say Powell will likely hint that the Fed is edging closer to a long-awaited pause in its rate increases. Yet he won’t necessarily send a clear sign that this week’s hike will be the Fed’s last. Instead, he will probably stress that further rate hikes could happen if inflation were to stay persistently high, well above the Fed’s two per cent target rate.

The weekend collapse of First Republic Bank, the second-largest bank failure on record, isn’t expected to stop the Fed from proceeding with a rate hike Wednesday. First Republic, the third major bank to fail in the past two months, was seized by regulators on Sunday night and was sold to JPMorgan Chase.

Will banking turmoil spread to Canada?

First Republic’s failure comes as the U.S. central bank has been rapidly tightening credit to combat inflation, which reached its highest level in four decades last summer and has been slowing gradually since then. The rate increases are intended to slow borrowing and spending to cool the economy.

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