The Federal Reserve's policy-making Federal Open Markets Committee, or FOMC, is set to conduct its two-day meeting on Tuesday and Wednesday, July 30 and 31, with the latest interest rate decision due at 2 p.m. EDT on Wednesday.

If you've been following the financial news, it shouldn't come as a surprise that the FOMC is widely expected to cut rates at the conclusion of this meeting. However, there's still a great deal of uncertainty, and this could easily be a meeting where the market gets a surprise. With that in mind, here's what investors should keep an eye on, what is expected, and what could happen if the FOMC deviates from those expectations.

Exterior of the Federal Reserve building with the sculpture of an eagle perched over a doorway.

Image source: Getty Images.

Will we finally get an interest rate cut?

To be perfectly clear, the stock market is expecting the FOMC to cut interest rates. According to CME Group's FedWatch tool, which analyzes data from interest rate futures, the market is pricing in a 100% chance of at least a 25-basis-point rate cut.

Now, this doesn't mean that there's literally a zero chance that the FOMC will choose not to cut rates. The Federal Reserve can raise, lower, or hold interest rates, and doesn't even consider market expectations when making policy decisions. This simply means that virtually no one is expecting any outcome other than a rate cut.

Notice that I say at least a 25-basis-point rate cut. The FOMC typically moves interest rates by this much at a time. In the current rate-hike cycle, all nine increases were done in 25-basis-point increments. However, its important to understand that this isn't a set-in-stone rule. The FOMC can cut or raise rates by 50 basis points (0.50%) or even more if it wants to.

According to the CME Group's tool, there's about an 80% chance that the Fed will cut rates by 25 basis points, and a 20% chance that there will be a 50-basis-point rate cut.

The takeaway is that the market's expectation is for a 25-basis-point rate cut. However, it's far from a certainty that this will be the exact outcome.

No dot plot or economic projections

This Fed meeting will be light on data. While there is an FOMC meeting eight times per year, the Fed releases its economic projections and interest rate predictions (also known as the dot plot) at only four of them. These were all released at the conclusion of the June meeting, so you won't see them at the conclusion of this meeting.

In other words, there won't be a ton of information to digest. All eyes will be on the FOMC's interest rate decision and its statement.

The FOMC's statement is still important

Speaking of the FOMC's statement, while it won't be a focal point of the meeting, it will still be closely dissected by the market, so any major changes in the committee's language could certainly move the market. In fact, the main story from the June FOMC meeting was simply the removal of the word "patient" from the statement, which is the primary reason investors believe the committee is set to cut rates at the July meeting. That said, I don't foresee any major changes in the statement, and most experts seem to agree.

The biggest potential surprises would be...

Aside from a major change to its statement, there are only two ways the FOMC could really surprise investors: a 50-basis-point rate cut or no rate cut at all. And although the futures markets don't look like it, both are entirely possible.

If the FOMC surprises investors by cutting rates more than expected, it could certainly be a positive catalyst for the stock market. Rate cuts are a form of economic stimulus and could help quiet investor fears of a recession or slowing economy.

Conversely, if the FOMC decides to wait to cut rates (and there's certainly a solid case to be made that it should do this), it could cause a stock market sell-off. Not only are investors already pricing in at least one rate cut, but a hawkish FOMC decision could elevate fears that rates will be kept too high for too long and could trigger a recession.