In recent days, traders have increasingly priced in a deeper rate cut of around 50 basis points from the Fed. On Wednesday morning, the Fed funds futures market was pricing in a more than 60% chance of a 50 basis point cut, up from a 15% chance a week ago.
Wilmer Stith, a bond trader at Wilmington Trust, is still leaning toward a 50-basis-point cut, saying it's "basically real."
Comments from Fed officials suggest they are likely to cut the benchmark interest rate by about a quarter of a percentage point. That would mean a new range of 5.0% to 5.25%, down from a 23-year high of 5.25% to 5.5%.
Michael Feroli, chief economist at JPMorgan (one of the oldest financial services firms in the world), said the Fed needs to cut interest rates significantly. "What the Fed should do is clear: Adjust the policy rate down 50 basis points to adapt to changes in the world economy and balance risks," he said.
Feroli predicts the Fed will cut 50 basis points at today's meeting, with guidance for another 25 basis points at the two meetings later this year.
However, former Kansas City Fed President Esther George expects the Fed to cut only a quarter point, as the Fed will need to save for deeper cuts at subsequent meetings.
Several members, including Fed Governor Michelle Bowman, Atlanta Fed President Raphael Bostic, and Philadelphia Fed President Patrick Harker, have said that starting with a 25 basis point cut is appropriate and that they are not overly concerned about the weakening labor market.
In addition to the policy decision and interest rate forecast, Fed officials will also release projections for unemployment, inflation and the economic outlook. Chairman Powell will hold a press conference at 2:30 p.m. ET.
