A Clear Signal on the Timing of a Rate Cut May Not Be Given by the Fed

Investors hoping that Federal Reserve Chair Jerome Powell would hint at an imminent interest-rate cut during Wednesday’s policy decision may end up disappointed. The central bank is expected to leave borrowing costs unchanged for a fifth straight meeting, concluding its July 29-30 gathering.

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However, if one or more Federal Open Market Committee (FOMC) members dissent, it could signal that parts of the Fed are leaning toward reducing rates sooner than currently planned.

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With several key economic reports—including jobs data, inflation readings, and spending figures—scheduled before the Fed’s next meeting in mid-September, Powell may avoid making any firm commitments on future policy. Instead, he is likely to emphasize a data-driven approach while keeping options open.

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“There’s no doubt the Fed will keep rates steady this week,” said Bill Nelson, chief economist at the Bank Policy Institute and a former senior Fed economist. “The real question is whether they’ll suggest they’re more open to cutting rates in September.”

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Political pressure continues to mount, as President Donald Trump has repeatedly called for lower rates. Powell is also expected to face questions regarding the Fed’s $2.5 billion headquarters renovation project, which has drawn criticism from some Republican lawmakers. The rate decision is set for release at 2 p.m. in Washington, followed by Powell’s press conference 30 minutes later.

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Looking ahead, the Fed has only three more policy meetings scheduled for 2025. In June, officials projected two quarter-point rate cuts next year based on their median outlook. This projection makes a September cut plausible, according to Veronica Clark, an economist at Citigroup. “The majority of officials are still taking a wait-and-see approach, but a September move seems very possible,” Clark said.

Despite this, Powell may avoid signaling too strongly toward easing. Futures markets already place the odds of a September rate cut above 60%, based on federal funds futures pricing. Nelson noted that Fed officials may prefer not to push expectations any higher until they’ve analyzed the next two jobs reports—including the July data due this Friday—as well as additional figures on inflation, consumer spending, and housing activity.

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“If policymakers want flexibility, they need to stay completely neutral and stress that decisions depend on incoming data,” Nelson explained.

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There’s also the potential for dissenting votes at this meeting. If the Fed maintains its current language describing the labor market as “solid,” it may prompt opposition from officials who believe the job market is weakening. Governor Christopher Waller has openly argued for a July rate cut, warning that the employment landscape is “on the edge” and could deteriorate rapidly without policy support.

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Vice Chair for Supervision Michelle Bowman has also indicated readiness to lower rates immediately. Should both Waller and Bowman vote against the decision, it would mark the first instance since 1993 that two governors dissented simultaneously—an uncommon but not unprecedented occurrence when policy is near a turning point.

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Inflation and tariffs will likely be central topics in Powell’s remarks. Fed officials have been cautious about cutting rates until they fully understand how tariffs will influence prices. President Trump’s August 1 deadline for trade agreements may soon clarify future tariff levels and their economic implications. Waller has argued that tariffs will cause only a one-time price increase, while other policymakers fear a longer-lasting inflationary effect.

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Some price pressures have appeared in certain goods categories, but economists remain surprised by the muted overall impact. Gregory Daco, chief economist at EY-Parthenon, suggested that businesses may have mitigated tariff effects by stockpiling imported goods early, absorbing costs through slimmer profit margins, and distributing the burden across supply chains.

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Political dynamics could further complicate Powell’s messaging. The Fed’s costly renovation project, along with a recent tour of the building attended by Trump and several Republicans, has drawn scrutiny. Powell may also face questions about whether political pressures are influencing monetary policy decisions.

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Additionally, Treasury Secretary Scott Bessent has proposed that the Fed conduct an internal review of its non-monetary functions, arguing the institution has experienced “mission creep.” In a recent Bloomberg TV interview, Bessent said, “An internal review would be a good start. If it didn’t appear serious, perhaps there should be an external review.”

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Ultimately, while investors and politicians are eager for signs of imminent rate cuts, Powell and the Fed appear poised to hold steady and wait for further economic clarity before making any significant policy shifts.

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