The Federal Reserve is widely expected to lower interest rates Wednesday, but not necessarily because of economic reasons. In one of the strangest developments in central bank history, the Fed is very likely to ease mainly because they said they would.

The main debate about the outcome is whether the Fed's rate-setting body eases by 25 or 50 basis points. Arguments can be made for either choice or even for no rate cut, as discussed below. But the twist is that the most compelling reason for the Fed to act is because it has generated such high expectations for another rate cut.

"The Fed painted itself into a corner," said Marc Chandler, chief currency strategist at HSBC USA and a contributor to Street Insight.com. "We could get by with no cut except for expectations that have been raised by the Greenspan Fed. The chaos of doing nothing could be greater than the instability of a 50-basis-point cut."

Chaos is perhaps too strong, but there very likely will be some drama if the Fed defies expectations and stands pat. Late Tuesday, fed fund futures were pricing in 100% odds of a 25-basis-point rate cut and 52% odds of an additional quarter-point ease. Economists at all 22 of the Fed's primary bond dealers forecast a rate cut of some magnitude, as did every source queried for this story (even if the "because we said we would" rationale behind it is troubling).

Such certainty stems from a belief there's been a "regime change" at the Fed, whereby the central bank is now more concerned about deflation, or at least disinflation, than its historic enemy, inflation. Culminating a series of similarly themed statements by various Fed officials, the Federal Open Market Committee's May 6 policy statement declared: "The probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation." (Fed Chairman Alan Greenspan repeated that phrase, almost verbatim, during congressional testimony on May 21.)

If you liked this article you might like

'08 Rout Accelerates

'08 Rout Accelerates

Ennui Smothers Rally Effort

Ennui Smothers Rally Effort

Stocks Flop in '08 Debut

Stocks Flop in '08 Debut

Laggards Lead as Stocks Sulk Into '08

Laggards Lead as Stocks Sulk Into '08

Stocks Dither as Traders Eye Bargains

Stocks Dither as Traders Eye Bargains