The U.S. Federal Reserve is expected to stay in a holding pattern on Tuesday as officials evaluate the recent launch of a huge bond-buying program to boost the U.S. economy and how new fiscal stimulus will help do the job.

The Fed's last scheduled policy meeting of the year got under way at 8:30 a.m. (1330 GMT), a Fed spokesman said. A statement is expected at about 2:15 p.m. (1915 GMT).

Yields on U.S. Treasury bonds have risen dramatically in recent weeks, something the U.S. central bank probably had not expected to see so soon after launching its purchase program. But officials are unlikely to show any signs of scaling the program back.

Still, policy makers will likely be revising their economic outlook to reflect stronger growth after the White House and congressional Republicans agreed to extend tax breaks and provide a payroll tax cut, delivering fresh fiscal stimulus.

The continuing recovery in the economy and the likelihood of a tax deal could be recognized with somewhat more enthusiastic language about growth, said UBS economist Maury Harris in New York, although the recent run-up in interest rates could offset some of the positive growth impact of the still-debated tax deal.

Strong November retail sales data on Tuesday added to evidence the recovery is gaining strength, although it was unlikely to redirect the course for a Fed focused on too-high unemployment and too-low inflation.

They're still a long ways from their mandate, and one quarter of stronger growth won't shake them from this policy, said Dean Maki of Barclays Capital in New York.

The Fed's announcement early last month that it would purchase $600 billion worth of longer-term Treasuries came under attack from critics who charged the Fed with risking a round of competitive currency devaluations by weakening the dollar and potentially creating an inflationary monster.

POLITICAL, ECONOMIC PRESSURE

With benchmark short-term interest rates near zero, one intended impact of the bond-buying program -- referred to as QE2 because it is the second round of unconventional policy measures known as quantitative easing -- was to lower longer-term borrowing costs.

Policy makers will ponder why rates for the benchmark 10-year Treasury note have surged in recent weeks, a move that could weigh on the economy, particularly the already moribund housing market where mortgage rates are tied to Treasury yields.

Some at the Fed believe rates jumped partly in response to the unusually strong attacks on the bond buying by Republican lawmakers, whose star has been on the rise after electoral gains that gave them control of the House of Representatives.

Fed officials guard their political independence jealously and have made clear they will do whatever is needed to fulfill their mandate to pursue price stability and full employment.

More widely, there will undoubtedly be a vigorous debate about whether the Treasury sell-off reflects nervousness about exploding U.S. debt and future inflation, or whether it is simply a sign stronger growth is seen in the months to come.

It is plain that a substantial element of the market believes that the resumption of QE poses a real inflation threat, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. QE just makes many investors nervous.

Some economists have estimated the tax cut deal could boost growth in 2011 by a full percentage point. The deal cleared its first hurdle in Congress on Monday and could be approved by both chambers of Congress by the end of the week.

The realization of above-trend growth in the first half of the year will remove some of the urgency felt last summer to give the economy a shot of adrenaline, said Michael Feroli, chief U.S. economist for JPMorgan Chase in New York.

Economic data has also shown glimmers of improvement. In addition to the strong retail sales data on Tuesday, consumer sentiment has hit its highest level since June and the number or workers filing for unemployment insurance has been waning.

Before the tax deal was announced, private economists had expected the economy to grow around 2.7 percent next year. Fed officials had been somewhat more upbeat, looking for growth at between 3 percent and 3.6 percent.

While demand seems to be strengthening, the job market remains grim as unemployment rose to a lofty 9.8 percent in November, while core inflation was at a record low in October.

Fed officials may use the meeting to start to stake out positions on any further Fed easing. However, with the program just out of the starting blocks, the debate is unlikely to be reflected in the post-meeting statement.

It is too soon to make decisions, said Douglas Lee of Economics from Washington.

(Editing by Leslie Adler)