FOMC Decision Looms: Key Things to Watch
The Federal Open Market Committee (FOMC) is scheduled to announce its interest rate decision at 2:00 AM Beijing time on Thursday, followed by a press conference by Federal Reserve Chair Jerome Powell 30 minutes later. While major policy shifts are unlikely, this week's meeting is still packed with intriguing storylines.
It's almost certain that the Fed's language will be similar to the June meeting – little change to the statement, with officials pausing rate cuts for the fifth consecutive meeting. However, several interesting subplots are set to play out.
Potential Dissenters: Waller and Bowman
First, two Fed Governors – Waller and Bowman – may vote “no” on keeping the federal funds rate in the 4.25%-4.5% range. If this happens, it would be the first time since late 1993 that multiple governors have voted against the majority. Both favor rate cuts. Waller's vote carries extra weight as a potential candidate to succeed Chair Powell next year.
Trump's Visit to the Fed Construction Site
Second, this meeting is the first since Trump's historic visit to the Fed construction site and the ensuing cost overrun controversy. Fed officials have pushed back against White House criticism through active PR, and the issue is sure to surface at Powell's post-meeting press conference.
Inflation and Tariffs
Finally, the Fed has numerous economic considerations, including that Trump's tariffs may not have driven up inflation as much as many economists feared. This makes delaying rate cuts harder to justify, while Trump’s demands for aggressive easing further complicate the backdrop.
Bill English, former head of monetary affairs at the Fed and current professor at the Yale School of Management, stated, “If they chose to ease, they get nothing except the appearance of caving to the president, so I think undoubtedly their best strategy is to focus on the data, make their best judgment, make their policy decisions, and explain that as clearly as possible.”
Bill Nelson, chief economist at the Bank Policy Institute, said in a note on Tuesday, “There’s no question the FOMC will hold rates steady, the question is whether they’ll signal greater willingness to cut rates at the September meeting,” said Nelson, who was formerly the Fed’s chief economist.
With no update to the “Summary of Economic Projections” and the “dot plot” showing officials’ individual interest rate path expectations, investors will have to rely on the statement and Powell’s press conference remarks for clues about the path forward.
Dissenting Votes Not a Cause for Alarm
Waller and Bowman had advocated for rate cuts ahead of the meeting, saying that since the pass-through of tariffs to inflation hasn’t materialized, and as Waller described in a speech two weeks ago, the labor market is “on the edge,” now is the time for the Fed to ease.
“Inflation is near target, upside risks to inflation are limited, we shouldn’t wait for the labor market to deteriorate before cutting rates,” Waller said in a speech titled “The Case for Cutting Rates Now.”
These comments may resonate with Trump, but a CNBC survey of market experts and economists showed that only 14% believe Waller would get the nomination to replace Powell, whose term ends in May 2026. More popular choices ahead of Waller include Treasury Secretary Scott Bessent, former Fed Governor Kevin Warsh and National Economic Council Director Kevin Hassett.
Trump has called for Powell to resign, even threatened to fire him (later backing down), and blamed the central bank chief for the FOMC’s refusal to cut rates. He has argued the Fed should ease to lower the costs of financing government debt and to energize the housing market by lowering high mortgage rates.
Some commentators have downplayed the voting split. JPMorgan chief U.S. economist Michael Feroli said in a note to clients last Friday that he thinks two dissenting votes are “more about angling for the Fed Chair job, rather than based on economic conditions.”
Dianne Swonk, chief economist at KPMG, pointed out that dissenting votes are common near policy turning points.
“Given the wide range of uncertainties about the tariff impacts, it is reasonable to see dissenting votes when the Fed is close to deciding when to cut rates,” she wrote in a note to clients.
Tariffs Spark Division Within the Fed
Aside from Waller and Bowman, no other members have signaled an inclination to cut rates at this meeting. The June meeting minutes showed that some officials even favored no rate cuts this year. Governor Adriana Kugler will be absent from this meeting due to private commitments, reducing the committee’s voting membership to 11.
“The Fed is not holding off on cutting rates because of Powell,” former Dallas Fed President Robert Kaplan told CNBC. “The Fed is not cutting rates because … the committee members have not reached a consensus on cutting rates, there are 12 votes, he can’t do it by himself.”
“Even if you replaced the Fed Chair right now, I don’t think you’d get a rate cut in July,” he added. “So I think the actual situation is probably more complex than public remarks reflect.”
The Fed’s June dot plot still shows two rate cuts this year, but also reflects a deep divide among officials: of the 19 officials, 10 want at least two rate cuts this year (25 basis points each), and 7 think there should be no rate cuts.
“While the Fed’s decision is unlikely to be surprising, this meeting should be quite interesting,” said Julien Lafargue, chief market strategist at Barclays Private Bank & Wealth Management. He sees a “strong case” for a September rate cut but it may evolve with the data.
Recent inflation reports have shown that prices for some tariff-impacted goods (including toys and appliances) have risen. But the June consumer price index showed that core inflation was lower than expected for the fifth month in a row, suggesting price pressures haven’t spread widely.
“Given the post-Covid inflation playbook, some Fed officials are more cautiously of the view that tariff impacts may appear slowly,” said John Briggs, head of North America rates strategy at Natixis. “The question is whether the Fed is simply delaying gaining data clarity, this continual delay is eroding its resolve.”
Natixis expects the Fed to begin its easing cycle in October and cut rates continuously (25 basis points each) by June 2026.
Powell in the Eye of the Storm
Powell is almost certain to be asked about tariffs and inflation at the press conference. He’s likely to remain cautious, reiterating officials’ commitment to maintaining price stability – current inflation is still above the Fed’s 2% target.
Powell might also acknowledge that better-than-expected data and recently announced trade deals have lessened the likelihood of the worst inflation scenarios, echoing comments made by other officials in recent weeks, opening the door for a September rate cut.
However, Morgan Stanley stressed that Powell may say that there is a long time until September, and a lot of data will come out between now and the September rate decision, including two more jobs reports, as well as more inflation, consumption and housing data.
Andrzej Skiba of RBC Global Asset Management believes officials may be in a position to cut rates by then, unless tariffs escalate sharply or inflation data is unexpectedly high.
Still, economists remain puzzled why tariffs haven’t had a bigger impact on prices. Gregory Daco, chief economist at EY-Parthenon, said it may be related to several factors, including that companies stockpiled inventories ahead of the tariffs taking effect, supply chain parties sharing the costs, and more.
“I expect Chairman Powell to highlight these mechanisms, pointing to that cost pressures have started to appear but will still maintain a steady narrative,” Daco said.
Powell has faced unusual pressure from Trump this year, including being threatened with being fired. In recent weeks Republican attacks on the Fed have focused on its $2.5 billion office renovation project, ultimately leading to Trump touring the construction site in person last Thursday.
Powell may be asked about these attacks by reporters early Thursday, but he’s likely to focus on the economy.
“Many of Chairman Powell’s prepared answers to predictable questions are unrelated to monetary policy,” Feroli of JPMorgan wrote in the report. “We expect these questions from reporters will be a waste of time – because Powell will reiterate that he is focused on the duties Congress has given him.”
Gold Pressured Below This Level
Ahead of the Fed showdown, the short-term technical outlook for gold prices broadly remains unchanged. The daily chart shows that gold prices remain below the key resistance level of $3,345. That level is the upward trendline resistance and the confluence of the 21-day Simple Moving Average (SMA) and 50-day moving average.
The 14-day Relative Strength Index (RSI) holds bearish potential, remaining below the midline and currently near 47. If selling pressure resumes, gold prices could retest three-week lows of $3,302 and breach the July 9 low of $3,283. The last line of defense for gold bulls lies at the June 30 low of $3,248.
On the flip side, reclaiming $3,345 is critical to initiating a meaningful rebound to the upside. The next upside barrier will be static resistance at $3,380, which will pave the way toward the $3,400 mark.
EN
