Fed Official Speech Tonight Expected to Rein in Market Expectations, Powell's Remarks Could Set Tone for September Rate Cut

An APP obtained by Zhijiao Finance has learned that investors are closely watching Jerome Powell's speech tonight, but finding clues about the Fed's next rate cut may be disappointing. The market is widely expected to maintain its fifth consecutive rate freeze at the end of July 29-30. However, if there is a single or multiple dissents, it will release a signal: some FOMC members tend to prefer early rate cuts.

However, since there are many economic data to be released before the September meeting, Powell may choose to keep his options open and wait until the economy's direction and policy path become clearer.

"There is no doubt that FOMC will maintain its rate unchanged," said Bill Nelson, chief economist at Silver Policy Institute, on Tuesday. As a former senior economist at the Fed, Nelson pointed out: "The question is whether they will transmit a more open attitude towards September's meeting."

US President Donald Trump has been urging rate cuts. Additionally, Powell will definitely be asked about the Fed's $25 billion building renovation project - which has become a target for Republican attacks.

The Fed's interest rate decision will be released at 2 pm Eastern Time on Wednesday, followed by a press conference after the meeting.

September Outlook

After this week's meeting, the Fed has only three policy meetings left this year. In June, officials expected to implement two 25-basis-point rate cuts in 2025. Veronica Clark, an economist at Citi Group, said that makes September rate cuts look very possible. "Many officials are still in a wait-and-see mode, but September rate cuts are quite reasonable," Clark said.

However, Nelson believes Powell will not significantly raise market expectations for September's meeting. The pricing of Federal Fund futures contracts shows investors have already set the probability of September rate cuts at over 60%. Nelson says that before evaluating the economic data released before the meeting, Fed officials may not want this probability to rise further.

In the run-up to the September 16-17 meeting, policy makers will see two more employment reports, including the July report scheduled for release on Friday. Additionally, more US inflation, spending, and housing data will be released.

"If the committee wants to keep its options open, it must maintain a cautious stance and continue emphasizing the importance of policy based on data," Nelson said.

Opposition Vote Situation

If the Fed continues to describe labor market conditions as "stable" in its post-meeting statement, it may trigger opposition from some officials who worry that US employment is becoming increasingly fragile.

Fed Governor Christopher Waller has been vocal about supporting a July rate cut. He worries that labor market conditions are on the edge and that if the Fed does not provide more support, things will quickly deteriorate. Vice Chairman Michelle Bowman, responsible for supervision, also expressed her intention to support a rate cut at this meeting.

If Waller and Bowman both vote against, it would be the first time since 1993 that two officials have opposed a policy decision.

Tariff Impact

Powell may be asked about his interpretation of the latest inflation data. This Fed chairman, along with other officials, has expressed caution in understanding the impact of tariffs on prices before making any decisions. The August 1 trade agreement deadline set by Trump may clarify the average tariff rate and economic outlook.

Waller believes that tariffs will lead to a one-time price increase, while other officials are concerned about the potential for prolonged inflationary pressure.

Some commodity prices have already risen, but many economists are puzzled as to why their impact has not yet been more pronounced. Gregory Dako, chief economist at Deloitte, suggests that this delay may be due to factors such as companies pre-emptively stocking up on imports, absorbing shocks through reduced profit margins, and at least for now sharing some of the tariff burden with other parties in the supply chain.

Political Pressure

The press conference may also cover a wide range of topics, including the Fed's renovation project and last week's tour for Trump and other Republican politicians. Powell may be repeatedly asked if political pressure has affected officials' ability to set policy.

In addition, Powell may need to respond to Treasury Secretary Scott Berson's proposal - Berson suggests that the Fed is suffering from a "mission creep" issue, recommending that it review its non-monetary policy functions.

"An internal review would be a good start," Berson said in an interview on July 23. "If the internal review does not look serious enough, we may need to conduct an external review."