WASHINGTON (Reuters) - U.S. Federal Reserve policymakers meeting next week are expected to keep interest rates on hold but the larger story unfolding will be how the central bank confronts early moves by President Donald Trump that are likely to shape the economy this year, including demands the Fed continue lowering borrowing costs.

Trump was already complicating the Fed's job with moves to restrict immigration and raise import taxes, and on Thursday told global business leaders he would call on the Fed to cut interest rates.

"I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," he said at the World Economic Forum in Davos, Switzerland, revisiting a form of pressure he regularly applied to the Fed with little apparent effect in his first term.

In the first days of his new term, Trump tightened immigration rules with an increase in deportations expected, and threatened higher import taxes on Feb. 1, the first of what are anticipated to be a series of steps that could play out in ways that are still unknown.

The challenge for Fed Chair Jerome Powell and his colleagues will be in determining how much to allow uncertainty over what's ahead to influence decisions on monetary policy now, and how much guidance to give about the Fed's outlook.

Go too far and it starts to sound political, said Vincent Reinhart, a former top Fed staff member and now chief economist at BNY Investments, but hold back and it risks misleading the public about what to expect if imported goods become more expensive or the labor force has fewer workers than would otherwise be available.

Guidance from the Fed "is about a forecast, and today any forecast is about political economy. It is hard to do for an independent agency," said Reinhart. "You cannot move monetary policy on the assumption that there will be tariffs or tax legislation by the end of this year. Right now there are a lot of moving parts."

How fast and in what direction Trump's policies spool out in coming months are likely to influence what the Fed hopes will be the last phase of its fight to contain inflation that erupted to a 40-year high in 2022 but is now within about half a percentage point of its 2% target.

After cutting the benchmark interest rate a full percentage point last year, the Fed meets on Tuesday and Wednesday with policymakers likely to keep it in the current 4.25%-to-4.50% range. Data since the Fed's last meeting on Dec. 17-18 has kept intact the core view among Fed officials that inflation will continue to move steadily, if slowly, towards 2%, with a low unemployment rate and continued hiring and economic growth.

'MAXIMAL OPTIONALITY'

The personal consumption expenditures price index the Fed uses for its inflation goal is already nearing 2% on a three- and six-month basis. Policymakers expect solid progress to resume over the next few months but want confirmation in data.

"We view the January Fed meeting as mostly a placeholder," Bank of America analyst Mark Cabana and others wrote. With so much uncertainty "we expect (the Fed) to retain maximal optionality" to resume cuts in March or continue a pause.

Fed officials have already nodded to potential effects from Trump's trade, immigration and other policies, with staff at the December meeting penciling in assumptions for slightly slower growth, higher unemployment and little further progress on inflation for the coming year.

Minutes of that meeting showed "a number" of policymakers went through a similar exercise, with a freshened median projection from them showing less progress on inflation and a slower pace of rate cuts through 2025 - just half a percentage point versus the full point seen back in September.

That could come into question as well if expected progress on inflation is not realized in the first part of the year, though in his final public comments before the meeting Fed Governor Christopher Waller said policy could also tilt towards more and faster cuts if inflation behaves.

The impact of tariffs is far from certain, and Trump asserts that they will raise federal revenue and shift production to the U.S. Steps toward deregulation, meanwhile, would keep inflation in check.

'STAGFLATIONARY POLICY MIX'

Trump's November election victory, meanwhile, has been felt in other ways at the Fed. Governor Michael Barr resigned as Fed vice chair for supervision effective Feb. 28, and the Fed withdrew from an international central bank consortium on climate change - reversing a decision to join the group just before Democrat Joe Biden's arrival in office four years ago.

Yet the scope of his plans for tariffs, tax and regulatory policy, and immigration is only beginning to take shape, and even the impact of his initial moves may take time to become clear.

Measures of general economic and monetary policy uncertainty spiked after the election. Trump left little doubt in the opening days of his second term that he intends to follow through on his campaign promises - and even extend on them with announcements of at least temporary limits on what national health agencies can say to the public, for example, alongside standing promises to send U.S. troops to the Mexican border and put an initial 10% tax on imports from China next month.

Bradley Saunders, North America economist for Capital Economics, said he expected the Fed to cut rates again at its March and June meetings, but with any further cuts in doubt as policies on immigration cut labor force growth to zero and tariffs lead to renewed goods inflation.

"We expect a stagflationary policy mix from the new Trump administration," Saunders wrote this week, with the risk "tilted to fewer cuts depending on the exact timing of Trump's policy implementation."