All eyes are on Jerome Powell Wednesday afternoon, with the Federal Reserve chair set to announce the first interest rate cut in over four years. The federal funds rate, also known as the base interest rate, remains at a two-decade high after the Fed fought the biggest spike in inflation since the early 1980s.

Powell all but declared the battle against inflation won in late August in a speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “The time has come for policy for adjust,” he said, amid a rise in the unemployment rate and other signs of a cooling economy.

Wall Street has been clamoring for this action for months, but the size of this first cut and the timing of future ones remains uncertain. Here’s what you need to know:

When will the Fed make its announcement?  

The Federal Open Market Committee kicked off its two-day September meeting on Tuesday in Washington D.C. An announcement of their decision is expected at 2 p.m. ET, with Powell scheduled to hold a press conference half an hour later.

What will Fed do?

The Fed usually telegraphs changes to interest rates before policy meetings, but its signals have been less clear this time around. What is virtually certain is that Powell will announce a cut of either 25 or 50 basis points to the federal funds rate, which currently sits in the range of 5.25 to 5.5%.

While the subject of fierce debate on Wall Street, the difference between a quarter- or half-point cut likely won’t be felt much by most Americans. The full effects of a rate cut take years to ripple across the economy. The 30-year mortgage rate has been falling, however, and Powell’s commentary could cause them to drop further sooner rather than later.   

The Fed could also cut rates on Nov. 7, just two days after the U.S. presidential election.

What is the market expecting, and how will it react?

Last month, Wall Street appeared to be anticipating a gradual approach from the Fed, but traders have become increasingly optimistic about a 50-point cut in recent weeks. The latter has even become majority opinion.

As of Friday morning, traders are pricing in a 65% chance of a half-point cut and 35% odds of a quarter-point move, according to data from CME Group’s FedWatch tool cited by CNBC.

How markets will react will depend how the Fed’s decision and Powell’s commentary falls in line with investors’ expectations. A 25-point cut, for example, might upset investors who believe the Fed is acting too slowly, sparking recession fears and a market sell-off. At the same time, a 50-point cut could incite fears that inflation will spike again or that the economy is cooling faster than the Fed anticipated.   

“A lot of money will be made or lost today,” Jim Reid, Deutsche Bank head of global economics and thematic research, wrote in a Wednesday note cited by CNBC.



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