The November equity rally, which has added nearly a $1 trillion in market value for the S&P 500, could face its sternest test to date when the U.S. Federal Reserve publishes its policy statement later today in Washington as investors look for any suggestion of a change in next year's rate path.

Analysts aren't expecting any changes to the key Fed Fund rate, nor any major alterations to bets that Chairman Jerome Powell and his colleagues will hike it for the fourth time this year in December to a range of 2.5% to 2.75%, but are likely to be more focused on tweaks in language that will provide clues to the path of borrowing costs over the course of 2019. With consumer prices hitting the Fed's 2% target for the first time in more than six years, wages rising at the fastest pace since 2009 and the economy tooling along at a 3% clip, all the ingredients are in place for the Fed to signal a full compliment of hikes that would take the base rate closer to 3% by the end of next year, adding extra pressure to equities that have already demonstrated weakness in the face of higher rates.

However, the unlikely chances of major tax or spending changes from a Democrat-controlled House, and slowing growth signals from China and elsewhere, could encourage the Fed to take a slower approach to monetary tightening, allow inflation to rise modestly in the near term, before the economy weakens modestly next year and consumer price pressures ease more naturally. 

"The lack of an immediate inflation threat means that the Fed can run a while longer with the illusion that their gradual rate hikes-half the pace of 2004-to-2006-somehow will eventually stabilize the economy in some kind of semi-permanent sweet spot," said Pantheon Macroeconomics Ian Shepherdson. "In short, the FOMC is under no near-term pressure from markets or the commentariat to signal any shift in their expected policy path."

That message is likely to support stocks in the near term, especially as benchmark 10-year bond yields test the early October highs that triggered massive selling on both the Dow Jones Industrial Average and the S&P 500. Traders marked the notes at 3.23% in overnight trading, after hitting 3.25% in late-session trading Tuesday, as the dollar index rebounded from a two-and-a-half week low to trade 0.23% higher against a basket of six global currencies.

The S&P 500 has gained 3.76% this month, but is still some 5.5% down from the last Fed meeting on September 26, when the Fed raised rates for the third time this year and removed a key phrase that said its monetary policy "remains accommodative."

Current bets on the 2019 rate path are mixed, according to the CME Group's FedWatch tool, with odds of a March move sitting at 54.4% and the chances of a second hike in June pegged at around 35%.

The key figures to watch, however, will be rate hike probabilities for the Fed's meetings in September and December of next year, one of which may include the critical third interest rate move that would take the FedFunds rate past 3%. Current odds are no better than a one-in-five, according to the FedWatch tool, but both are higher than they were this time last month.

Part of the investor uncertainty on rates is linked to the impact of President Donald Trump's $1.5 trillion reform bill, which was passed in the final days of 2017 but its unlikely to be extended now that Democratic lawmakers will take control of key financial panels in the House of Representatives. 

And while wage growth is finally starting to accelerate, data suggests that companies are spending much less of the extra billions they're saving on tax to pay workers than they are to paying shareholders. Goldman Sachs suggests dividends and buybacks will top $1.2 trillion this year, topping the 2007 record, while data from JUST capital suggests that while 57% of the tax cut benefit is being returned to shareholders, only 18% is being used to create new jobs and a paltry 7% is being directed to higher wages. 

Analysts at Saxo Bank argue that the tight labor market, which includes a record 7 million job openings, suggests there are "more and more signs indicating that companies are facing pressure to increase wages."

However, it also notes that the Fed's ability to continue hiking rates will depend less on the labor market and more on the recent downturns in the housing and auto sectors, which are show persistent weakness over the past few months.

"So far, the market has paid very little attention to this downturn since investors have been too busy scrutinising political risk," said macro analyst Christopher Dembik. "But it is likely that the housing market will be a key domestic focus of investors in 2019 if the negative trend is not reversed as it acts as early indicator of recession."