Given a solid U.S. economy and low unemployment rate, the Federal Reserve today is widely expected to hold rates at 4.25%-4.50% for the fifth consecutive meeting. The more significant part of the gathering will be whether the decision is unanimous or what signals Fed Chair Jerome Powell can provide about the future. President Trump has consistently urged Powell to cut rates, arguing that the move is needed to lower the government’s interest payments and to make mortgages more affordable.
Bigger picture: A key reason for the Fed holding rates steady since the start of the year is the uncertain effect of tariffs on inflation. “We’re starting to get more clarity on at least the rate of tariffs with sound larger counterparties, with the EU being significant,” Jeffrey Rosenkranz, portfolio manager at Shelton Capital, said in an interview with Seeking Alpha. Mexico and Canada are “also very important,” but the Trump administration hasn’t spoken much about that. “It’s still going to take a while” for tariffs to wend their way to prices, “but I think even the Fed realizes they can’t wait for all of that information to come in.”
“More to the point is: What does the posture look like for September?” Rosenkranz continues. “Which is the bigger risk — to move too fast or to move too slow? There have been some comments that suggest one or two dissents [at the meeting], and it will be interesting to see if Powell gets cohesion and unanimity, or if he allows or is okay with some dissent.” Both Trump appointees (Christopher Waller and Michelle Bowman) may break ranks, marking the first time in over three decades that two governors will have voted against a policy decision.
SA Sentiment: Expectations for only one rate cut in 2025 have skyrocketed since the beginning of the year, with 56% of participants in Seeking Alpha’s Sentiment Survey for July seeing that as the most likely outcome. That’s up from 48% last month and the 23% seen in January. The results are based on an average of around 1,000 responses, with the survey available each month in Wall Street Breakfast.