The Federal Reserve's July policy meeting may see increased divergence, with seasoned market professionals stating that investors need not react
At the Federal Reserve's July policy meeting, it is possible that two governors will express opposition to the decision to maintain interest rates unchanged, marking the first time since 1993 that two members with permanent voting rights have simultaneously raised objections. Although the market generally expects the meeting to keep interest rates unchanged, seasoned market participants indicate that investors do not need to react too strongly to this. Analysts point out that the dissenting votes may be viewed as a political maneuver rather than a judgment based on economic data
According to the Zhitong Finance APP, the Federal Reserve's July policy meeting, which will conclude on Wednesday, may witness an extremely rare occurrence where two governors express opposition to the decision to maintain interest rates. This would mark the first time since 1993 that two members of the Federal Open Market Committee (FOMC) with permanent voting rights simultaneously voice dissent. However, seasoned market participants warn that even if this happens, investors need not react too strongly.
Despite significant pressure from U.S. President Trump and his allies on Federal Reserve Chairman Jerome Powell to cut interest rates quickly, the market generally expects that this meeting will still keep rates unchanged. However, some analysts point out that current Fed governors Christopher Waller and Michelle Bowman may vote against maintaining the status quo and instead support a rate cut.
According to foreign media reports, if this scenario does occur, it would be the first time in over five years that more than one committee member casts a dissenting vote on interest rate decisions, and the first time in over 30 years that two governors with permanent voting rights simultaneously express opposition.
Typically, such dissent would be viewed as a signal of a dovish shift in the Fed's stance, indicating that a rate cut may be on the table at the next meeting. However, Tom Essaye, editor of Sevens Report Research, noted in a report on Tuesday, "This is not a normal time."
He stated that if Waller or Bowman cast a dissenting vote, the market may not pay much attention, as both governors are seen as potential successors to Powell. Powell's term as chairman will end in May next year, and Waller and Bowman’s support for a rate cut at this time could easily be interpreted by the market as a "political move" to gain favor with the president, rather than a judgment based on economic data.
"The true motivation behind their dissenting votes being political maneuvering is not really important," Essaye pointed out. "What matters is how the market perceives this action." He also emphasized, "If media reports suggest that these dissenting votes represent the Fed beginning to shift towards a dovish stance, or that the likelihood of a rate cut in September is increasing, it should not be taken seriously; it is neither surprising nor will it change market expectations."
In fact, since Powell took office as chairman, the Federal Reserve has maintained a high level of unity. According to Steve Donze, a strategist at Pictet Asset Management's Japan division, who posted on the X platform, the FOMC under Powell's leadership has had the least amount of disagreement in history.
Despite a strong rebound in U.S. stocks over the summer, there was a slight pullback on Tuesday, with the S&P 500 ending a streak of six consecutive trading days at record highs, down 0.30%; the Dow Jones Industrial Average fell 0.46%, still close to the historical high set last December.
Meanwhile, as investors prepare for this week's Federal Reserve meeting and the July non-farm payroll report set to be released on Friday, U.S. Treasury yields fell sharply on Tuesday. The yield on the 10-year U.S. Treasury bond dropped by 8.9 basis points to 4.329%.
Regardless of whether actual dissent occurs at this meeting, the debate between the "doves" and "hawks" within the Federal Reserve will intensify. Macquarie Bank strategists Thierry Wizman and Gareth Berry noted, "We have repeatedly emphasized that the doves have a point regarding some signs of weakness in the U.S. economy, which is also why they may voice dissent." They also believe that the possibility of the Federal Reserve cutting interest rates in the September meeting still exists, and the possibility of a rate cut in December cannot be ignored either.
According to the CME FedWatch tool, the current data reflected in the federal funds futures market shows that the market expects a probability of over 60% for a rate cut in September, while the likelihood of at least two rate cuts before December is about 65%
