The Financial Question Driving Wednesday: How Big?

Wednesday marks a long-awaited day: the Fed's first rate cut since the COVID pandemic began will likely be announced at 2pm ET. But while there is near-certainty a cut is coming to the current key interest rate of 5.3%, the size of the cut remains murkier.

• CNN notes that "Wall Street and economists" are typically aligned on expectations, but that's not the case this time around: CNBC surveyed 27 economists, fund managers, and strategists and found 84% expect a 0.25% cut, with 16% expecting double that. But the fed futures market is more squarely in the latter camp, with 65% expecting a 0.5% cut. CNN reports the shift among investors has occurred in the last couple of days.
• CNBC also asked respondents to predict where rates will land at year's end (4.6%) and at the end of 2025 (3.7%). The futures market predicted 4.1% and 2.8%.

• NBC News reports some analysts' early expectations that a 0.25% cut was coming have shifted in the face of "data points showing worsening economic conditions." Among them, an unemployment rate that has ticked up in four of the last five months.
• The Wall Street Journal explains what's at stake: "Central bankers usually prefer to cut in smaller increments. But this time, it's more complicated. Fed Chair Jerome Powell has so far managed to subdue inflation without crashing the economy. Now, he must make sure a soft landing doesn't slip through his fingers."
• NBC News cites Preston Mui, senior economist at Employ America, as saying the heftier cut would indicate the Fed is willing to be proactive and get ahead of labor market deterioration.
• On the flip side, Mark Zandi, chief economist at Moody's financial group, says "a [0.5%] cut is usually done in emergencies" like the pandemic. "Some could interpret that as the economy going off the rails."

(More interest rate cut stories.)