With dovish dissent internally and political pressure externally, tonight's FOMC decision of "no interest rate cut" is bound to be turbulent?

Tonight, the Federal Reserve's July interest rate decision is almost set in stone with "maintaining interest rates unchanged," but the market's focus has already shifted to Chairman Powell's statements: Will there be a rate cut in September? Will the rare "dissent" from two dovish governors break the consensus? Pressure from Trump, slowing economic data, and unresolved tariff impacts... a current of undercurrents is surging.

On Wednesday Eastern Time (Thursday early morning Beijing time), the Federal Reserve will conclude its two-day policy meeting. The market generally expects the Federal Reserve to keep the federal funds rate unchanged in the range of 4.25%-4.5%, marking the fifth consecutive time of maintaining the interest rate.

However, two governors may cast dissenting votes, which would set a record for the first time since 1993 that two governors simultaneously oppose a policy decision. Federal Reserve Governor Waller and Vice Chair for Supervision Bowman have both publicly supported a rate cut in July, believing that the impact of tariffs on inflation will be one-time and that the job market is weakening. If the two cast dissenting votes as expected, it will highlight deep divisions within the Federal Reserve regarding the direction of monetary policy.

Investors will closely watch Chairman Powell's statements at the post-meeting press conference for signals of a possible rate cut in September. According to the CME FedWatch tool, the federal funds futures market currently prices in about 68% probability that the Federal Reserve will implement a 25 basis point rate cut at the September meeting.

Political pressure is also intensifying. Trump continues to call for rate cuts and criticizes the Federal Reserve's $2.5 billion headquarters renovation project. Treasury Secretary Scott Bessent has suggested that the Federal Reserve conduct an internal review of its non-monetary policy functions to address what he calls "function creep."

Expectations for a Rate Cut in September Heat Up

The Federal Reserve has only three policy meetings left this year. According to Citigroup economist Veronica Clark's analysis, based on the median forecast from June Federal Reserve officials indicating two rate cuts of 25 basis points this year, a rate cut in September appears quite likely.

"Generally, officials are still in a wait-and-see mode, but September is very reasonable," Clark stated.

However, Bill Nelson, chief economist at the Bank Policy Institute, pointed out that the transmission of tariffs to inflation has not fully manifested, and Powell may want to keep his options open until there is more clarity on the economic direction. Before the next meeting on September 16-17, decision-makers will see two employment reports and more inflation, spending, and housing data.

According to the pricing of federal funds futures contracts, investors have priced in a probability of over 60% for a rate cut in September. Federal Reserve officials may not want this probability to rise further before reviewing economic data.

Rare "Official Dissent" May Appear

Analysts believe that if the Federal Reserve continues to describe the job market as "solid" in its post-meeting statement, it may trigger concerns among officials worried about a more fragile employment situation, leading them to cast dissenting votes.

Waller elaborated on the reasons for a rate cut in July in a detailed speech earlier this month, expressing concerns that the job market is "on the edge," and that without more support from the Federal Reserve, the job market could deteriorate rapidly. Bowman also expressed a willingness to cut rates at this meeting If both members cast opposing votes, it will be the first time since 1993 that two board members oppose a policy decision, indicating to some extent that the voice of the "rate cut faction" is significantly strengthening within the board. While this is noteworthy, some Federal Reserve observers believe that it is normal for officials to have disagreements when policy approaches a turning point.

Additionally, most officials, including Powell, still maintain a "wait-and-see" stance, and this disagreement itself reflects that the policy turning point is approaching.

What variables remain before the September decision?

The biggest challenge Powell faces this time is how to balance maintaining policy flexibility with responding to market expectations. Because before the September meeting, the Federal Reserve will see:

• 2 non-farm payroll reports (the first will be released this Friday)

• 2 inflation data (CPI, PCE)

• The actual implementation of Trump's tariff policy and market reactions

• Second-quarter GDP data (to be released before this week's meeting)

Currently, economic signals are mixed: although the unemployment rate remains low, consumption is starting to weaken, signs of layoffs in manufacturing are increasing, the housing market is sluggish, and the quality of some data is being questioned, making the outlook more uncertain.

The most concerning issue for the Federal Reserve is how to determine whether the price increases caused by tariffs are "temporary." Waller and others believe that the impact of tariffs is "just a one-time shock" and does not constitute a policy barrier. However, some officials (such as Goolsbee) emphasize that the effects of tariffs will manifest with a delay, and hasty actions may misjudge the situation.

It is worth noting that currently, over 70% of regional Federal Reserve reports indicate that businesses have passed on tariff-related costs to consumers through price increases or surcharges, which means inflation may accelerate again in late summer.

Gregory Daco, chief economist at EY-Parthenon, pointed out that the impact may be delayed due to businesses stockpiling inventory in advance, absorbing shocks by lowering profit margins, and at least for now, sharing part of the tariff burden within the supply chain.

Recent Federal Reserve Beige Book reports show that businesses in various regions are facing moderate to significant input cost pressures due to tariffs, especially in the raw materials used in manufacturing and construction. Many businesses have passed on at least part of the increased costs to consumers through price increases or surcharges, although some have delayed price hikes due to increased price sensitivity among customers.

Trump continues to exert pressure, political influence cannot be ignored

Trump's recent criticism of the Federal Reserve has intensified.

He has repeatedly called for rate cuts on social media and in speeches, accusing the Federal Reserve of "luxurious corruption" in its headquarters renovation costs, and has threatened to fire Powell, even personally "inspecting" the Federal Reserve construction site last week.

Although Powell has consistently emphasized the independence of the central bank in the past, the market is closely watching whether politics will gradually seep into policy-making. Especially as the September meeting approaches and the election year nears, this external pressure will become an important variable in observing the Federal Reserve's stance.

If the Federal Reserve leans dovish, combined with the current rising growth concerns, U.S. stocks may welcome a "policy easing" relief rally. However, analysts also remind that risk assets have fully priced in a "soft landing" and will be more sensitive to negative data. If Powell hints at an open door for rate cuts, the dollar may continue to weaken, especially if Trump's tariff policy falls short of expectations and data remains weak In addition, the relatively mild expectations for interest rate cuts continue to suppress short-term yields. Traders are focused on whether Powell will change his assessment of the labor market and the "upside inflation risks."