There’s no drama about what the Fed is expected to do this week—rates are staying put. Markets are pricing it in, 105 out of 105 economists in the Reuters survey agree, and Powell hasn’t given us any reason to expect otherwise. The drama is in what comes next—and whether dissent inside the Fed starts breaking out into public view.
🔥 A 1993-Style Revolt?
Here’s the setup: Governors Waller and Bowman have both publicly argued for a rate cut this meeting. If both dissent, it would mark the first time two Fed governors voted against the Chair since 1993. It wouldn’t change the rate outcome, but it would change the tone. A divided Fed is a vulnerable Fed—especially with political heat rising and Trump openly criticizing Powell.
Most other FOMC members are sticking with the “wait-and-see” line. There’s too much uncertainty—tariff delays, inflation noise, data accuracy questions. Everyone’s hedging. Waller and Bowman aren’t. Waller is in the running for the next Fed Chair.
If they dissent, the message is clear: the window for cuts is open, and they’re ready to walk through it.
📉 The Case for Cuts Is Building—Slowly
Inflation hasn’t run away, but it’s not vanishing either. Goods inflation ticked up 0.7% in June. Employment remains stable, but the Beige Book says layoffs in manufacturing are picking up. GDP is soft. Goldman notes that activity is finally showing signs of below-trend growth—even before the next round of tariffs hit in August.
The Fed doesn’t want to commit. But it also doesn’t want to fall behind.
Goldman is pricing in three cuts this year. Markets are leaning toward September for the first move (17bps priced = ~68% probability of a 25bps cut). A July cut would be a huge surprise—but it’s not unthinkable if Powell signals the data is deteriorating faster than expected.
📣 Powell Under Fire
Expect Powell to get grilled in the Q&A. Trump’s pressure campaign is intensifying, and the press will test Powell’s patience—asking if he’ll serve out his term, if he’s bowing to politics, and whether he’s open to cuts despite holding today.
Don’t expect much clarity. Powell usually plays it straight: “I’m focused on the job.” He’s not going to entertain hypotheticals. But the fact that this is even a topic tells you everything you need to know about the environment.
Powell’s term as Chair ends in May 2026. He could stay on as Governor until 2028. But chatter about replacements—Warsh, Waller, Hasset, even Bessent—has already started. The market hears that, and it hears instability.
📊 Data Doubts
A recent Reuters poll found that 89 of 100 economists are concerned about the quality of U.S. economic data. That’s a huge problem. If the Fed is flying blind—relying on distorted inflation or GDP figures—then every policy move becomes more dangerous.
Powell will likely be asked about this too. Expect him to deflect. But internally, the Fed has to be sweating. Data quality is one thing when the trend is strong. It’s a different story when you’re navigating recession and inflation risk simultaneously.
💣 The Tariff Bomb Is Ticking
The tariff impact is the biggest wild card. The new round of U.S.–China tariffs is scheduled to go live on August 1st (unless extended again). But even talking about 145% tariffs on one side and 125% on the other creates uncertainty—and uncertainty kills hiring, investment, and pricing visibility.
The Beige Book reflects this. Businesses are delaying decisions. Margins are getting squeezed. Some are raising prices. Others are eating the cost because consumers are tapped out. It’s the worst of both worlds—cost pressures rising, demand softening.
This is the kind of setup that forces the Fed’s hand, even if the data isn’t screaming for cuts yet.
🧾 What to Watch in the Statement
Morgan Stanley expects minimal changes to the July statement. Don’t expect any huge shifts. But do look for subtle tells:
Will “solid” growth be downgraded to “moderate”? Probably.
Will “uncertainty has diminished” be removed? Almost certainly.
Will they acknowledge the new tariffs and increased trade risks? That’s the wildcard.
The phrase to watch is whether they stay “attentive to risks on both sides” or shift toward emphasizing downside risks. That’s the difference between holding firm—and preparing to pivot.
🧠 Final Thought: This Is About September
Nobody expects fireworks this week. But the fuse is being lit for September. If Waller and Bowman dissent now, Powell gets boxed in. The market hears it as a signal. Even without a cut, it changes expectations.
This meeting is about optics and guidance. A split vote. A downshift in tone. A hint at the next move. That’s where the market will react.
And if Powell’s not careful, the next FOMC headline won’t be about rates. It’ll be about chaos inside the Fed.
