Sept 18 (Reuters) - U.S. stock index futures were marginally higher on Wednesday as the Federal Reserve was widely expected to deliver its first interest rate cut in more than four years, with most investors betting on a 50-basis point reduction.
Borrowing costs have stayed at their highest levels in over two decades since July 2023, when the central bank last hiked interest rates by 25 basis points to between 5.25% and 5.50%.
At 7:05 a.m. ET, Dow E-minis were up 58 points, or 0.14%, S&P 500 E-minis were up 7.5 points, or 0.13% and Nasdaq 100 E-minis were up 38.5 points, or 0.20%.
Futures linked to the Russell 2000 index , tracking small caps which tend to fare better in a lower interest-rate environment, were also flat.
The benchmark S&P 500 (.SPX), and the blue-chip Dow (.DJI), both recovered from an early August rout to clinch intraday record highs in the previous session, after a batch of economic data hinted at a still-robust economy ahead of the Fed decision, expected at 2:00 p.m. ET.
However, uncertainty over the size of the rate cut has kept investors on the sidelines. Following dovish commentary from present and former Fed officials recently, traders are now pricing in 65% chances of a bigger 50-basis-point reduction, according to the CME Group's FedWatch tool.
Analysts, however, caution that an outsized move from the central bank could spook markets, which are already nervous about the overall health of the world's biggest economy.
Bets for a smaller 25-bps cut have now slipped to 35% from 86% a week ago. Investors will also be watching for comments from Fed Chair Jerome Powell at 2:30 p.m. ET to gauge the central bank's stance on the economy and prospects of further rate cuts this year.
"Powell would need to provide solid macro justifications for a half-point move to avoid sounding too sensitive to market rate expectations," analysts at ING Bank said.
"Incidentally, Powell would need to show the 50 bps cut isn't a 'panic' move. Failing to offer such reassurance can cause turmoil in equities."
Markets have rallied this year, with all three major indexes setting record highs on prospects of lower interest rates as inflation moderated and the jobs market showed gradual signs of cooling.
Heavyweight growth stocks edged higher in premarket trading. Nvidia (NVDA.O), inched up 0.10%, while Alphabet (GOOGL.O), and Microsoft (MSFT.O), added 0.73% and 0.34%, respectively.
Among top movers, Intuitive Machines (LUNR.O), jumped 51.6% after clinching a $4.8 billion navigation services contract from NASA.
General Mills (GIS.N), fell 1.3% after the Cheerios maker posted first-quarter results.
Sirius XM Holdings (SIRI.O), gained 2.23% after Guggenheim upgraded the radio company's stock to "buy" from "neutral".
On the economic data front, a report on housing starts for August is due at 8:30 a.m. ET.
Reporting by Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Pooja Desai and Maju Samuel
