Fed starts 2-day meeting, market sees steady rates

WASHINGTON, Jan 30 (Reuters) US Federal Reserve policy-makers started a two-day meeting on Tuesday that was widely expected to conclude with a decision to hold rates steady along with a renewed warning about inflation risks.

In its first meeting of the year, the Federal Open Market Committee began deliberations at about 2 p.m. (1900 GMT), a Fed official said.

The Fed is expected to hold overnight rates steady at 5.25 percent and maintain its inflation vigil in a statement due on Wednesday at about 2:15 p.m. (1915 GMT). Some analysts said the Fed may alter language in its statement to reflect evidence of gathering strength in the economy, but it may also take note of softening inflation.

Recent reports of unexpectedly strong hiring and consumer sentiment, gains in manufacturing and durable goods orders and even surprising activity in home building and sales have bolstered the Fed's contention that a housing slowdown would not drag down other areas of the economy.

Earlier on Tuesday, the Conference Board's index of consumer sentiment rose to 110.3 from an upwardly revised reading of 110.0 in December, reflecting a more favorable job market.

The Fed's most recent Beige Book, based on anecdotal information of conditions in all 12 Fed districts, showed that many businesses were having difficulty finding skilled workers, despite slowing housing markets.

With unemployment at a low 4.5 percent rate, the central bank is expected to remain more concerned about inflation than about flagging growth, analysts say.

Economists and investors have largely abandoned their hopes for an interest rate cut by mid-year. Interest rate futures markets have priced in steady rates through June, with investors gauging just a 2 percent chance for a cut or a rate hike in any given federal funds futures contract until then.

For a Reuters preview of the meeting, please see [ID:nN29290008].

Reuters DH VP0045