Rare presidential pressure, rare opposing votes, the market has no interest rate cut expectations, but Powell's press conference is a "must-watch show"

On Wednesday local time, the Federal Reserve FOMC meeting will be held under multiple pressures, and Chairman Powell may face the most critical moment of his tenure.

Although the market almost universally expects the interest rate to remain unchanged at this meeting, Trump's public pressure on Powell, internal committee policy disagreements, and concerns about the central bank's independence make the political significance of this meeting substantial.

Trump has repeatedly urged Powell to cut interest rates in recent weeks, even threatening to fire the central bank chairman, and last week made a sudden visit to the Federal Reserve headquarters to apply pressure, causing concerns about the Fed's independence to continue to rise.

There are also rare signs of disagreement within the Federal Reserve. Previously, Fed Governor Waller and Vice Chair Bowman both publicly expressed support for a rate cut. If the committee decides to keep rates unchanged and the two vote against it, it will mark the first time in 30 years that two governors have voted against a decision in the same meeting.

Analysts believe that any signal of diminished central bank independence could raise consumer borrowing costs and negatively impact the economy. The core issue Powell faces at Wednesday's press conference is not the interest rate level, but whether he will continue to serve as a governor after his term as chairman ends in May next year.

Trump's Pressure Escalates, Central Bank Independence Tested

Trump's pressure on Powell has significantly escalated in recent weeks. He has not only belittled Powell on a personal level but also threatened to fire him due to the high renovation costs of the Federal Reserve headquarters, even making a surprise visit to the Fed to apply pressure.

Benson Durham, global policy and asset allocation head at Piper Sandler, described Trump's visit as “the most absurd, shocking, and cliché performance,” aimed at intimidating Powell. He believes Trump is trying to make Powell uncomfortable, prompting him to give up his governorship when his chairmanship ends.

After visiting the Fed, Trump stated that he had a private conversation with Powell about interest rates and said, “My impression is that Powell may be ready to cut rates.” Chris Hodge, chief U.S. economist at Natixis CIP Americas, believes that Trump's move aims to create an expectation that “Powell is about to cut rates in September,” thereby cornering Powell into a “loose position.”

However, Julia Coronado, a former senior staffer at the Fed and president of MacroPolicy Perspectives, stated that Trump's attempts to intimidate the central bank chairman will not succeed. She pointed out:

“The view that Powell can be easily cornered or pressured actually overlooks everything we know about him.”

Rare Dual Disagreement at the Fed in 30 Years

In addition to external pressures, Powell also faces challenges from within. Fed Governor Waller and Vice Chair Bowman have publicly expressed support for a rate cut at the upcoming policy meeting Wall Street Journal previously mentioned that Waller believes that the inflation caused by tariffs will quickly transmit, and pointed out that the decline in consumer spending and weak labor demand are reasons for lowering interest rates now. Bowman has recently joined the supportive camp, stating that if inflation continues to ease, "it is time to seriously consider lowering interest rates."

If the committee decides on Wednesday to keep the federal funds rate unchanged in the range of 4.25% to 4.5%, and Waller and Bowman vote in favor of easing policies, it will mark the first time since December 1993 that two governors have disagreed with the chairman at the same meeting.

In the 60 meetings supported by Powell, only about 16% had at least one dissenting vote, and only 3% of the decisions had governors voting against.

BNY Investments Chief Economist and former Federal Reserve economist Vincent Reinhart pointed out that governors are more likely to vote against at the end of the chairman's term because dissenting votes can serve as a "bargaining chip," prompting the chairman to pay more attention to their views in post-meeting statements or press conferences.

Market Expectations Remain Steady, but September Rate Cut is Uncertain

Powell has consistently called for patience, expressing a desire to observe the impact of tariff policies and to lower interest rates only after gaining greater confidence that inflation can sustainably fall back to 2%. However, the U.S. June CPI inflation rebounded to 2.7%, indicating that the price transmission effect of tariffs is continuing to intensify.

Currently, federal funds futures trading shows that the probability of a rate cut at the July meeting is almost zero.

Former St. Louis Fed President James Bullard believes that the Federal Reserve has room to cut rates, and September is a good choice. According to the CME FedWatch tool, the market's expectation probability for a 25 basis point rate cut in September is slightly above 60%.

However, most economists remain cautious. Coronado pointed out that before the September meeting, there are two employment reports and two CPI reports pending publication, and these data will be key to decision-making.

Barclays Senior U.S. Economist Jonathan Millar stated:

"Inflation data may rebound from August to October, making it difficult for the Federal Reserve to cut rates before December. I think there is some uncertainty even in December."