Investors await the Federal Reserve’s policy announcement today. Markets are expecting interest rates to remain unchanged, but will be closely watching for cues from Powell’s press conference. As of today, the US Fed is expected to restart its cut campaign from September. Some experts believe it can be pushed back to October, while a few have predicted no rate cuts in 2025.
The case for a September rate cut may diminish. In Q2, US GDP increased by a stronger-than-expected 3%, indicating that the economy is resilient. In addition, ADP data showed that the US private sector added 104K jobs in July, much exceeding predictions of 75K. On the trade front, President Trump slapped a 25% tariff on India beginning August 1st, with potential further penalties for Russian energy imports.
The Federal Open Market Committee (FOMC) meeting is over two days, July 29-30. The final decision on whether the FOMC has decided to cut the rate or not will be announced by US Federal Reserve chair Jay Powell at 2 pm ET on July 30.
Powell’s press conference will be immediately after the monetary policy announcement and can be watched on the US Fed’s official YouTube channel, streaming live.
It will be interesting to watch Powell’s comments on the Fed’s independence, especially after the recent controversy around the Fed’s renovation expenses on its building and the opening up of FOMC meetings to the public as per the Government in the Sunshine Act of 1976.
Data on Inflation and Unemployment
The decision for the US Fed to cut rates will depend primarily on the incoming data on inflation and unemployment.
“The real focus will be on Chair Powell’s commentary and any changes to the Fed’s economic projections. Inflation came in at 2.7%, still above the 2% target, with tariff-related uncertainty keeping price pressures elevated. At the same time, the labour market remains relatively strong, with the unemployment rate unexpectedly falling to 4.1%, reinforcing the Fed’s cautious approach,” says Mayank Mundhra, FRM- VP Risk & Head Research Abans Financial Services.
Dissent Within the US Fed
Meanwhile, Trump and other key White House officials have been urging a substantial reduction in interest rates, thereby exerting pressure on Powell. However, Powell is only one vote on the FOMC.
The first time several governors have disagreed since 1993, Christopher Waller and Michelle Bowman might cast “no” votes to maintain the federal funds rate fixed at 4.25%–4.5%. Both of them have been advocating for a rate cut.
Although Waller and Bowman are the only members who have indicated a desire to cut at this meeting, the minutes of the June meeting show that some officials had called for no cuts this year. The committee vote will be reduced to 11 because Governor Adriana Kugler will not be present.