Fed about to take first step in four years as key meeting looms

On Thursday, the Federal Reserve will announce its interest rate resolution, cutting rates for the first time in four years after the central bank kept borrowing costs at 20-year highs for more than a year.

In the case of this meeting, however, it's worth noting that generally speaking, despite all the “hype” in the markets, Fed rate meetings are usually fairly predictable affairs. Policymakers often communicate their intentions ahead of time so that markets can react in advance and everyone has at least a general idea of what's going to happen. For now, however, markets remain uncertain about the extent of the Fed's rate cut.

Forecasters generally expect the FOMC to cut rates by 25 basis points, bringing the federal funds rate down to a range of 5% to 5.25%, but economists at JPMorgan Chase & Co. expect the Fed to take an “aggressive first step” by opening the rate-cutting cycle with a 50-basis-point cut, and investors also think a 50-basis-point cut is more likely. The Fed will take a “positive first step” by cutting rates by 50 basis points to start the cycle.

In addition to the interest rate resolution, the Fed will also release its latest quarterly forecast, which will provide more insight into borrowing costs and the future direction of the economy.

Investors generally believe the Fed will cut rates at a more aggressive pace this year than the series of 25-basis-point cuts that economists have predicted. Financial markets will already be pricing in the Fed to cut rates by more than 1 percentage point for the rest of the year, meaning the Fed will cut rates by at least 50 basis points in a single meeting.

Half an hour after the interest rate resolution, Fed Chairman Jerome Powell will hold a news conference, when he may have to balance between his own views, the committee's views and the so-called “dot plot” message. If the statement is different, this may bring huge market volatility.