The Federal Reserve is poised to cut its benchmark interest rate on Wednesday, the first time it has pushed it lower since the start of the Covid-19 pandemic.

A cut in the benchmark interest rate serves as a benchmark for other borrowing costs across the economy, and while the move was widely expected, investors were unable to predict how large the cut would be.

A poll conducted by CNBC correspondent Steve Liesman on Tuesday found that the majority of respondents predicted a 0.25 percent cut in interest rates from the current level of 5.3 percent. At the same time, however, Wall Street traders said a 0.5 percent cut was more likely.

The Fed tends to cut interest rates in 0.25 percent increments—and until recently, there was general agreement that it would likely cut rates by that amount. But a series of data pointing to worsening economic conditions has led some analysts to believe that a 0.5 percent cut is more likely—and perhaps even necessary.

Although the unemployment rate remains relatively low by historical standards at 4.2%, it has risen in four of the past five months – a pace that is common before recessions. And while layoff activity remains subdued, hiring rates have stalled, making life difficult for many job seekers.

In a recent research paper, economists at the Minneapolis Federal Reserve argue that the U.S. labor market may be worse off than it appears, pointing out that one estimate now says there are 1.5 applicants for every job opening – well below the pre-pandemic average.

“We do not seek or welcome a further slowdown in the labor market,” Fed Chairman Jay Powell said in a speech last month.

Among those in favor of a 0.5 percent reduction is Bill Dudley, former president of the Federal Reserve Bank of New York and now a columnist at Bloomberg News.

“When labor market conditions deteriorate beyond a certain point, this process tends to become self-reinforcing,” Dudley warned Monday, adding that investors are increasingly seeing signs of weakness that the Fed may be overlooking.

In a blog post the same day, Preston Mui, senior economist at Employ America, a research group that advocates for full employment, said a large “upfront” cut would be a sign that the Fed wants to get ahead of a worsening labor market.

If the Fed instead chooses a 0.25 percent cut, even though it has announced another 0.25 percent cut at its next meeting in November, it will signal to the markets that it is not willing to act proactively, Mui said.

“If the Fed waits until layoffs rise, it will likely be too late; fire protection is more effective than firefighting,” he wrote.

The counterargument: Markets could interpret a 0.5 percent cut as a sign that the Fed believes the economy is in worse shape than even the more alarming recent data suggests.

“A 0.5 percent cut is usually done in emergencies,” such as during the Covid-19 pandemic, said Mark Zandi, chief economist at financial group Moody’s. “Some might interpret that as if the economy is going off the rails.”

Whatever the outcome, some consumers are already benefiting from the mere expectation that the Fed will cut rates. Mortgage rates have hit their lowest since February 2023, and auto loan rates are also falling.

A 0.5% cut would have a more direct impact on interest rates tied to the federal funds rate, including credit cards, home equity loans and small business loans.

However, according to Greg McBride, chief financial analyst at Bankrate, a cut of 0.25 or 0.5 percent is unlikely to provide significant relief in the short term.

“A rate cut alone is not a panacea for borrowers struggling with high financing costs and has minimal impact on overall household budgets,” McBride wrote in a note released Monday. “More significant will be the cumulative effect of a series of rate cuts over time.”

Consumers should continue to aggressively pay off their expensive credit card debt or home equity loans with double-digit interest rates, he said.

“Interest rates will not fall fast enough to get you out of a difficult situation,” McBride wrote.