The Federal Reserve's decision tonight is expected to be hawkish and stable, and Powell's speech will become a barometer for the September rate cut

According to the Zhitong Finance APP, investors are closely watching Jerome Powell's speech tonight, but they may be disappointed if they hope to find clues about an imminent interest rate cut by the Federal Reserve. It is widely expected that policymakers will keep interest rates unchanged for the fifth consecutive time at the end of the meeting on July 29-30. However, if one or more officials cast dissenting votes, it may signal to the market that some members of the Federal Open Market Committee (FOMC) are inclined to cut rates sooner.

However, with a large amount of economic data to be released before the next meeting in September, the Federal Reserve Chair may choose to retain operational flexibility until the economic trajectory and the correct policy path become clearer.

"There's no doubt that the FOMC will keep rates unchanged," said Bill Nelson, chief economist at the Bank Policy Institute, in a report on Tuesday. Nelson, a former senior economist at the Federal Reserve, noted, "The question is whether they will convey a more open attitude toward a rate cut at the September meeting."

U.S. President Donald Trump has been calling for rate cuts. Additionally, Powell is likely to be asked about the Federal Reserve's $2.5 billion building renovation project, which has become a target for Republican attacks on the Fed.

The Federal Reserve's interest rate decision will be announced at 2 PM Eastern Time on Wednesday, and Powell will hold a post-meeting press conference 30 minutes later.

September Outlook

After this week's meeting, the Federal Reserve has only three policy meetings left this year. In June, the median projections from Fed officials indicated plans for two 25 basis point rate cuts in 2025. Citigroup economist Veronica Clark stated that this makes a rate cut in September seem quite likely. "Many officials are still in a wait-and-see mode, but a rate cut in September is very reasonable," Clark said.

However, Nelson from the Bank Policy Institute believes it remains uncertain how much Powell will raise market expectations for a rate cut in September. Pricing in federal funds futures contracts shows that investors have assigned a probability of over 60% for a rate cut in September. Nelson noted that before having the opportunity to assess the economic data released before the meeting, Fed officials may not want this probability to rise further.

Before the meeting on September 16-17, policymakers will see two more employment reports, including the July employment report to be released this Friday. Additionally, more U.S. inflation, spending, and housing data will be released in succession.

"If the committee wants to retain operational flexibility, it must remain cautiously neutral and continue to emphasize the data dependency of policy," Nelson said.

Dissenting Votes Situation

If the Federal Reserve continues to describe the labor market as "robust" in its post-meeting statement, it may provoke dissent from some officials who are concerned that the U.S. job market is becoming increasingly fragile.

Federal Reserve Governor Christopher Waller elaborated on his reasons for supporting a rate cut in July in a detailed speech earlier this month, expressing concern that the labor market is "on the edge" and could deteriorate rapidly if the Fed does not provide more support. Another governor, Vice Chair for Supervision Michelle Bowman, also indicated her readiness to support a rate cut at this meeting If Waller and Bowman both vote against, it will be the first time since 1993 that two board members have voted against a policy decision. Although this situation is noteworthy, some Federal Reserve observers indicate that it is normal for officials to have disagreements when policy approaches a turning point.

Tariff Impact

Powell may be asked about his interpretation of the latest inflation data. The Federal Reserve Chair and other officials have stated that they are cautious about interest rate cuts until they better understand the impact of tariffs on prices. The August 1 trade agreement deadline set by Trump may clarify the trend of average tariff levels and the economic outlook.

Waller indicated that he expects tariffs to cause a one-time increase in prices, while other officials are concerned that the impact of tariffs on inflation may be more persistent.

Some commodity prices have already risen, but many economists are puzzled as to why their impact has not been more pronounced. Gregory Daco, chief economist at EY-Parthenon, stated that this impact may be delayed due to factors such as businesses importing inventory in advance, absorbing shocks by lowering profit margins, and at least for now, sharing part of the tariff burden with other parties in the supply chain.

Political Pressure

The press conference may also cover various other topics, including the Federal Reserve's renovation projects and a tour event held for Trump and other Republicans last week. Powell may be repeatedly asked whether political pressure has affected officials' ability to formulate policy.

Additionally, Powell may need to respond to a proposal from Treasury Secretary Scott Basset, who stated that the Federal Reserve has a "mission creep" issue and suggested a review of its non-monetary policy functions.

"An internal review would be a good start," Basset said in an interview on July 23. "If the internal review does not seem serious enough, then perhaps an external review could be conducted."