The Federal Reserve on Tuesday began a two-day meeting where it is expected to restate its intention to keep interest rates on hold near zero for an extended period and perhaps offer a less upbeat outlook for the economy.

Europe is likely to be a key focal point in the Fed's discussions, as policymakers assess the extent to which the continent's debt troubles and its negative effects on credit markets might impact the United States.

At the same time, low inflation and other soft U.S. data, including an unexpected slump in existing home sales reported on Tuesday, may also reinforce the U.S. central bank's commitment to keeping rates low for an long time.

It is highly unlikely that there will be a substantive change in policy or the guidance which suggests that rates will likely remain low for an extended period, said Marc Chandler, chief currency strategist at Brown Brothers Harriman.

In response to the worst financial crisis in generations, the Fed chopped the overnight federal funds rate to near zero and launched a host of emergency measures to support the economy, such as outright purchases of government and mortgage debt.

Most economists expect the central bank to wait until some time next year before bumping rates higher. The Fed will issue a statement outlining its views on policy and the economy at around 2:15 p.m. (1815 GMT) on Wednesday.

Financial markets have been under pressure in the last few months and the cost of interbank borrowing has been on the rise, sparking fears of a renewed credit crunch.

In April, the central bank said that while bank lending continues to contract, financial market conditions remain supportive of economic growth. With European banks having run into some trouble, officials may reassess that view.

The sorry of state of the U.S. job market is another factor giving the Fed leeway to keep rates near rock-bottom lows despite concern about future inflation among some economists.

With the jobless rate still hovering not far below 10 percent, Fed officials see little risk that the economy's spare productive capacity will suddenly be put to work quickly enough to trigger a rise in inflation.

If anything, Fed officials are keeping a close eye on the numbers to make sure inflation does not get dangerously low, leading to a deflationary spiral that could be a much more difficult quandary for monetary policy than rising prices.

U.S. consumer prices, excluding food and energy costs, rose just 0.9 percent year-on-year through May. Most officials would like to see inflation running close to 2 percent.

Kansas City Federal Reserve Bank President Thomas Hoenig is again expected to dissent against the Fed's ultra-low rates pledge, which he feels could lead to financial bubbles. But with markets looking a bit rickety, analysts think Hoenig will once again be alone.