September's Federal Open Market Committee meeting is shaping up to be much different from those of the past several years. This time, we can expect the Fed's first interest rate cut in over four years.Â
The size of the rate cut, however, is open to debate. Some experts are sticking to their prediction of a modest quarter-percentage point reduction, while others are now pushing for a bigger half-percentage point cut.
Many economists and finance analysts think a deeper rate cut is a safer bet to avoid a major economic slowdown. Several posit that the central bank waited too long to start easing rates.
"You can make a strong argument that the Fed should have cut rates in July," Robert Fry, chief economist at Robert Fry Economics, told CNET. However, Fry is not convinced the Fed will make a 50-basis point cut. He's waiting for tomorrow's retail sales and industrial production reports before finalizing his prediction.
Today's CME FedWatch data, a tool that measures the likelihood of changes to the federal funds rate, shows the barometer shifting rapidly over the weekend in favor of a half-point cut. Just last week, the general consensus was that the Fed would carry out a more traditional quarter-point reduction.
"The consensus of market participants is that the Fed will certainly cut rates and it appears that 50 basis points is most likely," said Robert Johnson, a certified financial analyst and CEO of Economic Index Associates. As of early evening Monday, the CME's FedWatch Tool showed the probability of a 50-basis point rate at 67%, and the probability of a 25-basis point at 33%. Johnson is betting on a more aggressive 50-basis point cut.Â
Not all experts are convinced. Some suggest that a bigger reduction in the federal funds rate could signal that the Fed didn't act fast enough and the economy is weakening too much. That could send an alarming message to the market and spark investor panic.Â
Regardless of the size of the cut at Wednesday's FOMC meeting, the Fed will continue to consider economic data when setting a policy for a series of rate cuts over the next several months.Â
If you have credit card debt, expect your interest rate to drop in the coming weeks, though experts say these dips won't have a large impact on your debt right away.Â
If you have money in a high-yield savings account and prefer to move it before variable interest rates dip, you may want to consider a certificate of deposit with a high fixed rate.
If you're looking to buy a home, mortgage rates have already started trending down for weeks in anticipation of a rate cut. In the coming months, you may be able to lock in a lower interest rate on your home loan, though that all depends on short-term volatility in the housing market.
For more coverage on interest rates, inflation and the Federal Reserve's rate cut decision this week, tune into CNET Money's Fed Watch coverage.
