The Federal Reserve's interest rate decision is approaching! The market is closely watching the "hawk-dove showdown," with signals of a fall rate cut becoming the focus

According to the Zhitong Finance APP, the Federal Reserve will announce its interest rate decision on July 30 (Wednesday) at Eastern Time. The market generally expects the Federal Reserve to keep the benchmark interest rate unchanged, waiting for more data to reveal the impact of tariffs on consumer prices. However, the increasingly intense debates during this week's policy meeting may heighten market expectations for a rate cut in the fall.

Federal Reserve Chairman Jerome Powell is under significant pressure from U.S. President Donald Trump and his allies to lower borrowing costs, and he may also face opposition from several officials this week who wish to support the slowing labor market.

Wells Fargo senior economist Sarah House stated, "Even if we do not see any changes in the policy rate, I believe we have seen some signs that the policy path is at a turning point. Of course, most members of the committee do not seem to have reached that point yet—I think they remain vigilant about the impact of these tariffs on inflation."

Federal Reserve officials will release a statement after the meeting at 2 PM Eastern Time on Wednesday in Washington, and Powell will hold a press conference 30 minutes later. Interest rate futures indicate that investors are betting on a possible rate cut at the next meeting in September, and Federal Reserve watchers will closely monitor any news that helps confirm this view.

This interest rate decision coincides with the release of key economic data, including the monthly employment report to be released on Friday. Economists expect that the July employment report will show a slowdown in job growth due to the ongoing uncertainty surrounding Trump's trade policies, which continue to weigh on the economic outlook.

Cracks Within the Federal Reserve

Many analysts believe that Federal Reserve Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman may voice opposition. Both officials, appointed by Trump, have indicated that the current interest rate level is too high given the rising risks to employment.

Waller hinted at dissent earlier this month, stating that the Federal Reserve should take immediate action to support the "marginal" labor market. Bowman also indicated in June that if price pressures remain low, she might support a rate cut as early as this month.

If both Waller and Bowman vote against, it would be the first time since 1993 that two committee members have voted in opposition. Waller is considered one of the candidates Trump is considering to replace Powell when his term ends in May next year.

Some commentators are unfazed by the divisions that may appear in the voting results. Michael Feroli, Chief U.S. Economist at JP Morgan, stated last Friday that he believes the two dissenting votes are "more about vying for the appointment of the Federal Reserve Chair than an assessment of economic conditions."

In recent years, the number of dissenting votes within the Federal Reserve has decreased.

KPMG Chief Economist Diane Swonk pointed out that it is common to see differing opinions as the policy turning point approaches.

In her report last Thursday, she wrote, "Given the significant uncertainty surrounding the impact of tariffs, as the Federal Reserve gets closer to deciding when to cut rates, one should expect to see divisions."Although Waller and Bowman are increasingly focused on the Federal Reserve's employment responsibilities, most other officials remain more concerned about inflation. The forecasts released by policymakers in June clearly show the impact of tariffs on prices and the uncertainty surrounding the Federal Reserve's response: among the 19 officials, 10 hope for at least two rate cuts of 25 basis points this year, while 7 officials expect no rate cuts.

Recent inflation reports indicate that prices of certain goods affected by tariffs, including toys and appliances, have risen. However, according to the Consumer Price Index, the core inflation rate in June was below expectations for the fifth consecutive month, suggesting that price pressures have not yet become widespread.

John Briggs, head of U.S. interest rate strategy at Natixis North America, stated, "Given the inflation strategy in the post-pandemic era, some Federal Reserve officials are more cautious, believing that tariffs may take longer to manifest."

Natixis expects the Federal Reserve to resume its easing cycle in October and continue a series of 25 basis point rate cuts until June 2026.

Focus on Powell's Speech

Powell is almost certain to be asked about tariffs and inflation at this press conference. He may remain cautious, reiterating that the Federal Reserve has a responsibility to maintain price stability while inflation remains above the Fed's 2% target.

The Federal Reserve Chairman may also acknowledge that better-than-expected data and the recently announced trade agreements have reduced the likelihood of the worst-case scenario for inflation, echoing recent comments from other officials and opening the door for a rate cut in September.

By the time policymakers meet on September 16-17, they will have two additional employment reports in hand, along with more data on inflation, consumer spending, and housing.

Anjey Skiba from RBC Global Asset Management stated that by then, unless tariffs are significantly raised or inflation data unexpectedly surges, the Federal Reserve may lower interest rates.

However, so far, economists remain puzzled as to why tariffs have not had a greater impact on prices. Gregory Daco, chief economist at EY-Parthenon, suggested that multiple factors may be at play, such as companies preemptively increasing inventories to cope with tariffs and cost-sharing among various links in the supply chain.

Daco stated, "I expect Chairman Powell will emphasize these mechanisms and highlight that these cost pressures are beginning to manifest, while still maintaining a calm and rational narrative style."

This year, Powell has faced immense pressure from Trump, even facing threats of being fired. In recent weeks, Republican attacks on the Federal Reserve have focused on its $2.5 billion building renovation project, and last Thursday, Trump even personally inspected the construction site.

Powell may be asked about Trump's pressure on Wednesday, but he is likely to focus on economic issues.

J.P. Morgan's Ferrulli stated, "Chairman Powell's prepared answers will be filled with content unrelated to monetary policy. We expect that all these opportunities will be wasted by media reporters, as Powell will reiterate that he is focused on the responsibilities assigned to him by Congress."