(Bloomberg) — Federal Reserve Chair Jerome Powell is poised to unleash the U.S. central bank’s most aggressive action to battle inflation in decades, but investors will be focused on parsing his words to see if even bigger moves are ahead.

At the end of Wednesday’s two-day policy meeting, the Federal Open Market Committee will likely raise interest rates by half point. This is its biggest hike since 2000. It also plans to shrink its $8.9 trillion debt. Washington’s Federal Open Market Committee will release its statement at 2. Powell will host his first press conference in person in over two years, 30 minutes later.

“We know they want to front-load the tightening,” said Ellen Gaske, economist at PGIM Fixed Income. “They are catching up with reality and are trying to get ahead of any entrenchment of inflation expectations. The real question is how high does the federal funds rate need to go to moderate some of the frothiness we are seeing.”

A 50 basis-point increase would be the largest since Alan Greenspan’s tenure as chairman. Add in the impact of shrinking the balance sheet and the scale of the policy shift recalls the 1980s measures of his predecessor, Paul Volcker, reflecting central bankers’ sense of urgency to bring down inflation at the highest level in four decades. 

These markets have already priced in this change — but some investors bet on a bigger 75 basis point increase in June. 

Rate hike

Three options will be offered to the FOMC during closed-door talks. This includes a 75-basis-point hike. But the odds of a surprise are low, said Roberto Perli, head of global policy research at Piper Sandler & Co. Because Wednesday’s moves have been well telegraphed, investors’ focus on the rate path will turn to Powell’s press conference, he said.

“People are going to pay attention to the tone Powell will strike,” Perli said. “It’s likely he will remain fairly hawkish and not rule out anything.” 

Bloomberg Economics:

“We believe that after the FOMC hikes by a half-point in May and presents a detailed plan to reduce the Fed balance sheet — to start imminently — Powell will avoid definitive guidance about the size of future hikes, as policy makers assess how the runoff is affecting the economy in coming months.”

— Anna Wong (economists), Yelena Shulyatyeva and Andrew Husby (economists).

Statement of the FOMC

The statement may repeat the loose guidance that “ongoing increases” in rates will be appropriate without detailing the size or pace. While the FOMC may acknowledge that reported growth has slowed following last week’s disappointing gross domestic product report, the statement could say consumer spending has been solid and job gains have remained strong.

Although most economists anticipate relatively small changes in inflation, they could change the language of the committee to make it more urgent. One option would be to say the Fed wants to raise rates “expeditiously” to a neutral setting, which is neither stimulative nor restraining, said Robert Dent, Nomura Securities economist. Fed officials frequently used the word “neutral” in recent times and consider neutral to be around 2.4%. 

On employment, the FOMC could consider saying it expects “labor market imbalances to improve,” an acknowledgement that leaders see the job market as overheated, he added.

Economists say it’s possible there could be a dissent in favor of a 75 basis-point hike, following St. Louis Fed President James Bullard’s objection in March, though Bullard in his public comments has said he doesn’t think that size of an increase is necessary right now. Half-point cuts have been accepted by more conservative policy makers in advance of the meeting.

Current Balance Sheet

FOMC likely to reveal its long-awaited plan to reduce its balance sheet. This will be done by running off maturing securities. Powell previously indicated that it could occur at this meeting.

Minutes from the March meeting show that reductions of up to $60 billion per month in Treasuries, and $35 billion each in mortgage-backed security have been discussed by the committee. This is more than $1 trillion per year. It’s in keeping with market expectations. And it’s nearly twice the rate at which the Fed cut its balance sheet between 2017 and 2019. 

Recent confirmation by the U.S. Senate of Governor Lael Brainard as Fed Vice Chair means that reductions may be made as early as June. A Bloomberg survey found that most economists anticipate runoff starting in May. They expect cuts of $20 Billion in Treasuries to begin and $15Billion in MBS to follow. The maximum cap will be reached in three months.

According to Diane Swonk (Chair economist Grant Thornton LLP), delaying full implementation by three months could be contentious.  “That puts full balance sheet runoff until Labor Day. That is a long time if reversing the balance sheet is really a part of the Fed’s inflation tool box.”

Press Conference

Powell will likely be asked about the rate and magnitude of future rate rises, as well as whether or not he would reconsider the 75-basis-point increase that Greenspan last did in 1994.

“The big question: will Powell elevate his call for action, boosting expectations for an even larger rate hike come June?” said Stifel Nicolaus & Co. Chief Economist Lindsey Piegza. “With growth already slowing in the first quarter and recession risks on the rise, it will be difficult for the Fed to make the argument to continue rate hikes at such an aggressive pace, let alone intensify the size of increases.”

Powell said that he’d keep all options open, but stressed the need to rely on data from the incoming. The chair’s blunt style of speaking has sometimes led to big price moves.

“It’s hard to calibrate words carefully when people are so focused on every single word,” Perli said. “That could create some volatility. That could create some misinterpretation.”

There are also questions that the chair might be asked about rising risks of recession. Goldman Sachs Group Inc (NYSE:). Economic experts estimate that 35% of the odds are a good chance. Deutsche Bank (ETR:) predicting a severe decline.

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