Despite all the hype leading up to them, Federal Reserve meetings are usually fairly predictable affairs. Policymakers signal their intentions well in advance, markets react, and everyone has at least a general idea of ​​what’s going to happen.

Not this time.

This week’s meeting of the central bank’s Federal Open Market Committee has an unusual air of mystery. While markets have collectively decided that the Fed will cut rates, there is a heated debate over how far policymakers will go.

Will it be the traditional rate cut of a quarter of a percentage point, or 25 basis points, or will the Fed take an aggressive first step and go for 50, or a half point?

Fed watchers are uncertain, raising the possibility of an FOMC meeting that could be even more impactful than usual. The meeting ends Wednesday afternoon, with the Fed announcing its rate decision at 2 p.m. ET.

“I hope they cut 50 basis points, but I suspect they cut 25. I hope for 50, because I think rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics. “They’ve achieved their mandate for full employment and inflation back to target, and that’s not consistent with a five-and-a-half percent target funds rate. So I think they need to normalize rates quickly and they need to have a lot of room to do that.”

Derivatives market pricing based on what the Fed will do is unpredictable.

Until late last week, traders had locked in a 25 basis point cut. Sentiment suddenly turned on Friday, with a half point on the table. By midday on Wednesday, fed funds futures traders were pricing in about a 63% chance of the bigger move, a relatively low level of conviction compared to previous meetings. One basis point is equal to 0.01%.

Many on Wall Street continued to predict that the Fed would initially take a more cautious approach.

“The experience of tightening, while it seemed to work, it didn’t work exactly the way they thought it was going to, so easing has to be viewed with just as much uncertainty,” said Tom Simons, U.S. economist at Jefferies. “So, if you’re uncertain, you don’t want to rush into it.”

“They have to act quickly here,” Zandi said, expressing the more dove-like view. “Otherwise they risk breaking something.”

The debate in the FOMC chamber is expected to be interesting, with an unusual division among officials who voted unanimously overall.

“I think they’re split,” former Dallas Fed President Robert Kaplan told CNBC on Tuesday. “There will be some around the table who, like me, feel that they’re a little late and they’d like to be on the front foot and not spend the fall chasing the economy. There will be others who, from a risk management perspective, just want to be more cautious.”

Besides the 25 vs. 50 debate, this will be an action-packed Fed meeting. Here’s a look at what’s on the agenda:

The FOMC has kept the benchmark federal funds rate stuck at a level of 5.25%-5.5% since the last increase in July 2023.

That’s the highest level in 23 years and it remained there despite the Fed’s preferred inflation measure falling from 3.3% to 2.5% during that time and the unemployment rate rising from 3.5% to 4.2%.

In recent weeks, Chairman Jerome Powell and his fellow policymakers have left no doubt that a cut is coming at this meeting. Deciding by how much will be a trade-off between fighting inflation and remembering that the labor market has slowed significantly in recent months.

“For the Fed, it comes down to deciding what is a bigger risk: reigniting inflationary pressures if it cuts by 50 bps, or threatening a recession if it cuts by only 25 bps,” Seema Shah, chief global strategist at Principal Asset Management, said in a written commentary. “Having already been criticized for reacting too slowly to the inflation crisis, the Fed will likely be reluctant to be reactive, rather than proactive, to the risk of a recession.”

Perhaps just as important as the rate cut are the signals that meeting participants are sending about where interest rates will go from here.

This is done via the “dot plot”, a grid in which each official indicates how he/she sees things going in the coming years. The September plot offers the first prospects for 2027.

In June, FOMC members planned just one rate cut through the end of the year. That will almost certainly accelerate, as markets are pricing in the equivalent of up to five, or 1.25 percentage points, of cuts (assuming 25 basis point moves) with just three meetings left.

Overall, traders expect the Fed to cut rates by 2.5 percentage points from the current overnight lending rate next year before pausing, according to the CME Group’s FedWatch indicator for futures contracts.

“That feels overly aggressive unless you know the economy is going to weaken significantly,” Zandi said of the market’s outlook. Moody’s expects quarter-point cuts at each of its three remaining meetings this year, including this week’s.

The dot plot is part of the FOMC’s Summary of Economic Projections, which also includes unofficial forecasts for unemployment, gross domestic product and inflation.

The biggest adjustment to the SEP will likely come with unemployment, which the committee will almost certainly raise from its 4.0% year-end forecast in June. The unemployment rate currently stands at 4.2%.

Core inflation, which stood at 2.8% in June, is likely to be revised down from 2.6% in July.

“Inflation appears set to understate the June FOMC projections, and the higher prints early in the year increasingly look like residual seasonality rather than reacceleration. A key theme of the meeting will therefore be a shift in focus toward labor market risks,” Goldman Sachs economists said in a note.

In addition to adjustments to the dot plot and SEP, the committee’s post-meeting statement will also need to be amended to reflect the expected rate cut and any additional guidance the committee will add.

The statement and SEP were released at 2:00 p.m. ET and are the first things the market will react to, followed by Powell’s press conference at 2:30 p.m.

Goldman expects the FOMC “is likely to revise its statement to sound more confident on inflation, portray the risks to inflation and employment as more balanced, and reemphasize its commitment to maintaining maximum employment.”

“I don’t think they’re going to be very specific about any kind of forward guidance,” said Simons, the Jefferies economist. “Forward guidance at this point in the cycle is not going to be very helpful if the Fed doesn’t really know what they’re going to do.”