Introduction to the Federal Reserve’s July Meeting
The Federal Reserve’s July Federal Open Market Committee (FOMC) meeting is a highly anticipated event, with market participants, policymakers, and the White House closely watching for signals on the Fed’s next move. As expectations suggest, the US central bank is likely to hold the federal funds rate steady at 4.25%–4.50% for a fifth consecutive meeting.
What to Expect from the Meeting
The market’s focus is on whether Chairman Powell will hint at a possible rate cut, especially given the recent softer-than-expected economic data. Historically, Powell has signaled upcoming policy moves through careful wording rather than outright promises. As a result, investors will be parsing every phrase for clues.
Key Events to Watch
- FOMC Decision (2:00 PM ET): The FOMC is widely expected to hold the federal funds rate steady, with interest rate traders assigning a 97% probability to no change.
- Statement Release (2:00 PM ET): Analysts expect the statement to maintain that labor market conditions are “solid” but may drop previous language about “diminished” risks to reflect heightened economic uncertainty.
- Dissent Watch: Governors Christopher Waller and Michelle Bowman are likely to dissent in favor of a rate cut, which would be an unusual split for a “hold” decision and may itself move markets.
- Powell’s Press Conference (2:30 PM ET): Powell will be asked what would give the committee the "greater confidence" it needs to cut rates. His answer will be telling, with a clear, achievable path potentially being seen as a green light for September.
- Political Pressure: With President Trump and other officials calling for faster rate cuts, Powell is expected to depoliticize the discussion and reiterate the Fed’s independence.
September Cut Hint
The probability of a rate cut in September is rising and currently stands at about 65%. While Powell is unlikely to explicitly commit to September, he could drop subtle hints that the Fed is moving closer to easing policy. Pay close attention to his characterization of the current policy rate, as this could imply the Fed is waiting for the right moment to ease.
Market Implications
- Equities: A dovish hint from Powell about September could boost equity markets, particularly rate-sensitive sectors like tech and consumer discretionary.
- US Dollar: A pause is largely priced in, so the US dollar may remain neutral unless Powell delivers a hawkish surprise. A dovish signal could weaken the US dollar as September cut expectations strengthen.
- Bonds: Treasury yields may hold steady unless Powell’s comments shift expectations for future rates. Any hint of prolonged high rates could push yields higher.
Conclusion
Expect Chairman Powell to keep his cards close but acknowledge the softening inflation trend, likely setting up September as a potential meeting for a rate cut. If he does, risk assets could jump; if not, expect heightened volatility as traders recalibrate. The Federal Reserve’s decision and Powell’s comments will have significant implications for the market, and investors should be prepared for any outcome.
