Introduction to the Federal Reserve Meeting
The Federal Reserve meeting is a significant event that takes place regularly to discuss and decide on major policy decisions. This week’s meeting is expected to be packed with intrigue, despite nothing likely happening in terms of major policy decisions. The Federal Open Market Committee will release its interest rate decision, and the narrative is almost certain to look similar to the June meeting, with little changed in the statement and officials again holding off on any cuts.
Subplots in the Federal Reserve Meeting
There are several fascinating subplots that will be in play during the meeting. Two Fed governors, Christopher Waller and Michelle Bowman, are potential "no" votes on keeping the federal funds rate locked at 4.25%-4.5%. If this happens, it will be the first time multiple governors have dissented since late 1993. Both have advocated for a rate cut, with Waller’s standing as a long-shot replacement for Chair Jerome Powell next year making his vote even more significant.
Another subplot is the historic visit of President Donald Trump to the Fed’s construction site and the kerfuffle that has erupted over cost overruns. Central bank officials have been using an aggressive public relations campaign to counter White House criticism, and this issue is sure to come up during Powell’s post-meeting news conference.
The Economy and Interest Rates
The Fed has plenty to ruminate over when it comes to the economy, including the possibility that Trump’s tariffs may not be having the inflationary impact that many economists feared. This makes delaying a rate cut harder to justify, with Trump’s demands for dramatic policy easing complicating the backdrop even more.
Arguments for a Cut
Powell will have his hands full outlining the committee’s position considering the likely opposition coming from Waller and Bowman. Both have argued for cutting, saying essentially that with the tariff pass-through to inflation not yet apparent and a labor market "on the edge" as Waller described it, it’s time for the Fed to ease.
Waller has stated that with inflation near target and the upside risks to inflation limited, the Fed should not wait until the labor market deteriorates before cutting the policy rate. These comments are likely to resonate with Trump, who has called on Powell to resign and blamed the central bank leader for the FOMC’s refusal to cut rates.
No Consensus for Easing
However, Powell is just one vote on the FOMC, and no other members besides Waller and Bowman have shown an inclination to cut at this meeting. Some officials have even advocated for no cuts this year. The reason the Fed isn’t cutting is not because of Jay Powell, but because there’s not a consensus around the table that it’s time to cut.
What to Expect
The committee is likely to stand pat, putting the distractions on the side and the decision over a cut off to September. With no update on the Summary of Economic Projections or the accompanying "dot plot" of individual members’ outlooks, investors will be left to pore through the statement and Powell’s remarks to the press for clues on what happens next.
There’s still "a strong base case" for a cut in September, but that could change depending on the data. The June dot plot still pointed to two cuts this year, but it also showed a strong division among officials.
Conclusion
In conclusion, this week’s Federal Reserve meeting is expected to be a significant event, despite nothing likely happening in terms of major policy decisions. The committee is likely to stand pat, but there are several fascinating subplots that will be in play, including the potential "no" votes from Waller and Bowman, the historic visit of President Donald Trump to the Fed’s construction site, and the arguments for and against a rate cut. Investors will be left to pore through the statement and Powell’s remarks to the press for clues on what happens next, and the decision over a cut will likely be delayed until September.
