The US Federal Reserve System explained

The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase. Here's a look at the US Federal Reserve's decision-making process.

WASHINGTON (REUTERS) - The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase and new economic forecasts providing a first glimpse into whether the US election has reshaped the central bank's growth and inflation outlook.

Fed fund futures show a 97 per cent probability that the Fed will lift rates by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday, according to the CME Group.

All 120 economists in a Reuters poll expect a rate hike in the wake of a string of solid US economic reports.

More telling will be whether the stock market rally and jump in bond yields triggered by Trump's Nov 8 victory will push the Fed to an inflection point of its own and a higher projected pace of rate increases for 2017 and beyond.

The Republican businessman is inheriting a good economy, one that grew by 3.2 per cent in the third quarter, the fastest pace in two years. There are, however, concerns that his plan to reduce taxes, cut regulation and increase infrastructure spending could not just boost the economy but also fuel higher inflation.

Since first published in 2012, the Fed's quarterly "dot plot" of projected interest rates has generally moved in one direction - down - and any post-election change will show whether policymakers expect Trump's policies to shake things up.

As of September, Fed officials' median projection was for two rate increases next year and a long run "neutral" level of 2.6 per cent. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.