Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, June 19, 2019. Kevin Lamarque | Reuters

Federal Reserve Chairman Jerome Powell faces one of the more difficult communications challenges of his tenure Wednesday, and he risks spooking financial markets if he doesn't get it just right. The Federal Open Market Committee is expected to cut interest rates by a quarter point, its third cut since July. The Fed will also release a statement, which it may tweak to indicate the door remains open to further rate cuts but that it could also pause in the process. The Fed chairman then speaks at 2:30 p.m. ET, a half hour after the statement is released. Many bond pros expect a "hawkish" message, meaning the Fed will indicate it is holding off on rate cuts as it watches to see if there is progress in the economy or in the outside events that could impact the economy, like the trade war or Brexit.

"I think, in his mind, he had had two or three insurance cuts. This is the third, and then he sits back and waits," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "The question today is whether Powell is up to the task of portraying a neutral Fed when they really do not want to ease again in the near future," notes Andrew Brenner of National Alliance. Whatever the Fed does, it is likely to be criticized by President Donald Trump who has berated Powell and the Federal Reserve board, arguing its policy should be a lot easier.

'Communications challenge'

Ahead of the meeting, the S&P 500 was trading at a new high, after recovering its prior high Monday. The S&P 500 was flattish Wednesday. Treasury yields were also higher this week, signalling expectations for a hawkish Fed, meaning it plans no further rate cuts. Yields edged up Wednesday morning, following the report of third quarter growth of 1.9%, better than the 1.6% that was expected. "It's a really tough position...In June, they removed the word 'patient' and they cut at the next meeting. What they don't want to do is set up something where they're pre-committing to not cut if it's needed," said Jon Hill, rate strategist at BMO. "The Fed wants to be patient but act as appropriate, as necessary. It's a combination of the two. They're not saying they're on hold, but they aren't trying to guide the market into not expecting a December cut if the data doesn't hold up. It's definitely a communications challenge." Regardless of how the Fed words its statement, Powell's job is made all the more difficult by the fact that there is such a wide divergence of views on Wall Street. There are Fed watchers who expect no more rate cuts this year or next, as well as those who see a recession coming and think the Fed will ultimately return to zero interest rates.

Goldman Sachs economists, for instance, expect the Fed to remove language from its statement that it will "act as appropriate" to sustain the economic recovery and also tweak the statement to indicate that Wednesday's rate cut completes the Fed's "midcycle adjustment." Yet, the fed funds futures market is pricing in about a 30% chance of a cut in December and more cutting next year.. "From our point of view, you're likely to get a sell-off based on a Fed disappointment," said Julian Emanuel, chief equity and derivatives strategist at BTIG. Emanuel said he expects the Fed to cut a quarter point, but then back off promising any more cuts, though it may keep the door open just slightly. "We think the market has discounted a lot of positive news, and it's likely to be shocked by this now," he said.

Chance of no cut?