Many also think that the US central bank will also cut the discount rate at which it lends directly to banks by 50 basis points, and may alter the arrangements surrounding this lending facility to make it more effective.
This package of measures is the most likely outcome from the Fed meeting.
But there could be a tough debate within the Federal Open Market Committee, with some members likely to lean towards a larger 50 basis point cut in the main federal funds rate, and others reluctant to ease rates at all.
A 50 basis point cut on Tuesday certainly cannot be ruled out.
At the last Fed meeting on October 31, the US central bank cut rates, but said following that rate cut the risks to growth and inflation were "roughly balanced".
Even then, Fed officials were not oblivious to the risks to growth. But they were equally concerned by the risks to inflation, in particular the threat that the combination of rate cuts, a weak dollar and high oil prices could unsettle the public's inflation expectations. The expected inflation rate helps to determine what inflation will be in the future.
Since the October Fed meeting, however, the risks to growth have increased sharply with the relapse in credit markets.
The Fed was slow to admit the shift, but speeches at the end of November by Fed chairman Ben Bernanke and vice-chairman Don Kohn acknowledged that thebalance of risks had changed.
Top Fed officials believe the renewed stress in financial markets amounts to a tightening in "financial conditions" that has the potential to slow growth.
They are concerned that - unlike in the early phase of the crisis - risk spreads for non-housing securities, and for non-financial businesses, have gone up. This suggests that the credit squeeze may be spreading, and indicates that the market perceives a higher probability of recession risk.
Moreover, they have detected some signs of softer consumer spending. Top Fed officials believe that tighter credit terms, high gasoline prices and diminished housing and equity wealth will restrain spending in the months ahead.
Friday's resilient employment report offers important reassurance that the economy is not falling off a cliff, but moderate private sector job growth is consistent with a softening economy.
All told, top Fed officials have probably both shaved down their base case forecast for growth and put additional weight on the "tail risk" of very weak growth.
The risks to inflation, meanwhile, have neither increased nor decreased very much since the October meeting.
For a while, with oil pressing towards $100 a barrel and the dollar wobbly, the inflation risk looked to be intensifying along with the growth risk.
But the price of oil has now retreated to below its October 31 level, and the dollar is essentially unchanged over the period. This, along with moderate core inflation, gives the Fed some, but not much, wiggle room. Headline inflation remains uncomfortably high. More-over, policymakers will be bothered by the tick up in consumers inflation expectations in the latest University of Michigan survey.
Financial market measures of inflation expectations have not moved up since the last meeting, but top Fed officials note that they have not declined much either, which is striking given the market's bearishness on growth.
Most Fed officials probably now concede that they may well have to reduce rates by more than 25 basis points over the coming months. There is an argument for front-loading this easing now in a 50 basis point cut, to reduce the risk of downward spiral of reduced credit availability and deteriorating outlook spreading from housing to the rest of the economy.
That is why a 50 basis point cut remains possible on Tuesday. However, most Fed officials think the case for frontloading is weaker now , because of the rate cuts already implemented. This will likely tip them towards a 25 basis point reduction.