STORY: After three major U.S. bank failures in two months and growing concerns about an economic downturn, the Federal Reserve appeared set to raise interest rates yet again, when its policy meeting wraps up on Wednesday, but it could be the last rate hike for some time.

The central bank is expected to deliver another 25-basis-point rate increase at the conclusion of its two-day policy meeting, which would push the benchmark overnight interest rate to its highest level in nearly 16 years.

"Inflation is still high."

Reuters Fed Correspondent Ann Saphir says that, despite the recent turmoil in the banking sector, the Fed believes it must stay the course to curb inflation — and that means even higher rates to slow economic growth.

"They don't think that they've seen the full effect of what they've done so far with rates actually filter through the economy. We're beginning to see it in the housing market, for instance. We're seeing credit tightening, which is related to interest rates. We're starting to see some of that, but there's still a very strong labor market. The economy is still growing. People are still spending quite a bit. The Fed isn't raising interest rates to make banks fail. That's sort of a bug in a way, not a feature. The feature is having banks pull back on lending."

Indeed, the Fed's aggressive rate hikes — 9 so far this year — created unexpected challenges for regional banks, and now credit is tightening up across the banking sector. That could be enough for the Fed to start pulling back on raising rates.

"We think this will probably be their last hike."

Brad Bernstein, managing director of wealth management at UBS, says the Fed’s tightening cycle is likely over after Wednesday. The market’s focus now: when does it start cutting rates.

"The markets are going to be looking at when they are going to be cutting. They have already been pricing in, the bond market has been pricing in second half of this year, definitely fourth quarter. The bond market may be a little overzealous in that respect, but I do think definitely by the first quarter of next year, as of today, the Fed will be cutting, based on what they've said and based on where we will be."

But first—one major uncertainty will need to be resolved — the raising of the country's debt ceiling. Without congressional action in the coming weeks, the U.S. could default, thrusting the economy and Fed policy makers into the middle of a crisis with little precedent.