In a rare divergence of opinions within the Federal Reserve (Fed), officials have differing views on the possibility of a future rate cut. While the market generally expects the Fed to keep rates unchanged this week, the focus has shifted to whether there will be a rate cut in September. Currently, two Fed governors have explicitly expressed support for a rate cut. If they vote in favor of a cut at the policy meeting on Wednesday (July 30th), it would mark the first time since 1993 that two governors have simultaneously opposed the existing decision.
Recently, President Trump has been pressuring the Fed to lower rates. Although Chairman Jerome Powell sets the policy direction, rate decisions still require committee approval. Observers say that the key question at this week’s meeting is whether Powell will hint at a rate cut in September and if other officials will start paving the way for such a move.
There are currently three factions within the Fed: those advocating for an immediate rate cut, those requesting more economic data before deciding, and those in favor of keeping rates unchanged. Earlier this year, concerns about inflation due to Trump’s tariff policies led the Fed to temporarily suspend rate cuts. However, with recent lower-than-expected price increases and signs of a cooling job market, the internal consensus within the Fed has gradually eroded.
Of particular interest are two governors appointed by Trump: Christopher Waller and Vice Chair for Supervision Michelle Bowman, who have recently publicly supported a rate cut. If the Wednesday meeting decides to keep rates unchanged and both of them vote for a cut, it would mark the first time in over thirty years that two governors have simultaneously opposed the existing decision, potentially impacting market confidence and policy.
Although the market generally predicts there is still room for 1 to 2 rate cuts this year, officials remain cautious about easing monetary policy in light of uncertainty surrounding tariffs, trade policies, and the core Personal Consumption Expenditure (PCE) index that the Fed closely monitors.
Additionally, concerns have been raised about the strengthening US dollar and weakening inflation in the Eurozone, leading to speculation about whether the European Central Bank will cut rates earlier and by a larger margin than expected, adding uncertainty to global central bank policies.
According to the Wall Street Journal, investors and economists are closely watching the next steps of the Fed, especially in the face of structural challenges such as AI impacting the labor market, tightening consumer lending, and the shift of housing market funds from retail investors to institutional investors. How the Fed formulates monetary policy will be a crucial variable in the global economy for the second half of the year.
Christian Hoffmann, Head of Fixed Income and Portfolio Manager at Thornburg Investment Management, believes that the likelihood of a rate cut at the Fed’s policy meeting on Wednesday is low, and rates are expected to remain unchanged. “I anticipate one to two rate cuts this year, but if the uncertainties around tariffs and trade policy persist, the framework for cutting rates will become increasingly difficult,” he said. While some favorable inflation data have emerged recently, the Fed’s primary inflation gauge, the Personal Consumption Expenditure Index, does not reflect the same trends. Hoffman argues that with a strong labor market, it is challenging to predict a significant rate cut.