Federal Reserve Faces Unprecedented Opposition Amid Rate Decision

On the evening of July 30, the Federal Reserve is expected to face significant opposition to its decision to maintain interest rates. The Federal Reserve is widely anticipated to keep the interest rate target range unchanged at 4.25% to 4.5% during its July 29-30 meeting. The likelihood of a rate cut during this meeting is estimated to be a mere 3%.

However, despite the near-certainty of another "wait-and-see" approach from the Federal Reserve, the institution may encounter one of the loudest dissenting voices in over three decades. In recent weeks, the most vocal criticism of the Federal Reserve has come from the White House, which is located just four blocks away from the Federal Reserve's headquarters. The administration has not only focused on disagreements over the timing of rate cuts but has also launched personal attacks on the Federal Reserve Chairman, questioning the expenditure on the renovation of the Washington D.C. headquarters and discussing potential successors with at least one candidate. Additionally, three political appointees have been appointed to the city planning commission, which is reviewing the Federal Reserve's renovation project. Behind these actions, the administration's ultimate goal is to pressure the Federal Reserve into cutting rates to reduce the interest cost of U.S. government debt.

In addition to external pressure from the White House, the Federal Reserve Chairman may also face internal dissent. A renowned journalist known as the "new Federal Reserve communicator" has suggested that this week's Federal Reserve meeting could see more than one board member voting against the decision, a scenario that has not occurred in over 30 years. The last time multiple board members voted against a decision in a single meeting was in 1993. Since then, the Federal Reserve has held 259 policy meetings, during which there have been instances of two or three dissenting votes, but these were primarily from regional Federal Reserve presidents, who have slightly more influence than board members.

This backdrop makes the upcoming Federal Reserve meeting particularly noteworthy. Will the Federal Reserve Chairman be able to bridge internal divisions? What changes will be made in the Federal Reserve's statement? Will the Chairman signal a rate cut in September? Will the administration continue to challenge the Federal Reserve's decision? These questions will be answered in due course.

During the previous meeting in June, the Federal Reserve's statement included several changes, such as modifying "economic uncertainty has further increased" to "uncertainty has decreased but remains at a high level" and removing the statement that "both high unemployment and high inflation risks have increased." This time, market analysts generally expect the main change in the Federal Reserve's statement to be the removal of the phrase "uncertainty has decreased but remains at a high level." Given that new tariffs are set to take effect on August 1, some committee members may be concerned about escalating trade tensions. Additionally, the U.S. second-quarter GDP data will be released just hours before the Federal Reserve's decision, and the statement typically summarizes the results in the first paragraph.

Some analysts predict that two board members, Waller and Vice Chairman for Supervision Bowman, who were appointed by the administration, may vote against the decision during this meeting. Both have expressed concerns about the delay in rate cuts, citing rising employment risks and current high interest rates. Waller recently stated that with inflation nearing the target and limited upward risks, the policy rate should not be lowered only after the labor market deteriorates. Bowman also expressed support for lowering the policy rate as early as the July meeting if U.S. inflation pressures are manageable. Both have a history of dissenting votes in previous meetings, with Bowman being the first board member to do so in 19 years during the September 2022 meeting. At that time, Bowman opposed a 50 basis point rate cut from the 20-year high of 5.3%, warning that potential inflation remained above the Federal Reserve's target and that officials should be cautious about unnecessarily stimulating demand. In March of this year, Waller dissented against the decision to slow the pace of balance sheet reduction.

During the news conference following the Federal Reserve's statement, the Chairman is unlikely to signal a rate cut in September directly. However, investors will have the opportunity to find clues about the rate cut during the Chairman's news conference. The Federal Reserve is expected to maintain the current interest rate, but the question is whether they will show a stronger inclination towards a rate cut in September. With only three policy meetings left this year, the likelihood of a rate cut in September is considered reasonable. However, it remains uncertain how much the Chairman will guide market expectations in this direction. Some analysts predict that the Chairman may indicate that the September meeting will be a "live meeting" for a potential rate cut, with the decision depending on economic data. Others suggest that the timing of the rate cut, whether in July, September, or later in the fall, may have limited impact on inflation or unemployment in the coming months, making the decision ultimately dependent on communication and political considerations.

The Chairman will also address the impact of the August reciprocal tariffs, which were initially set to take effect on July 9 but have been postponed to August 1. The Chairman may be asked about the latest inflation data and the potential impact of additional reciprocal tariffs. Both U.S. consumers and businesses are awaiting further clarity on the trade situation. The latest Federal Reserve Beige Book indicates that uncertainty is causing businesses to be cautious in their decision-making, and price pressures due to tariffs may become apparent by late summer. In the June CPI data released earlier this month, some commodity prices have already risen, but many economists are still unsure why these price increases have not become more pronounced. Some suggest that businesses may have pre-imported inventory, absorbed tariff impacts by reducing profit margins, and shared some of the tariff burden with supply chain partners, thereby delaying the impact of tariffs.

Given the administration's visit to the Federal Reserve headquarters just a week ago, the Chairman's news conference is expected to be politically charged. The conference may cover various topics, including the Federal Reserve's renovation project and the recent tour for the administration and other Republican officials. The Chairman may be repeatedly asked whether political pressure has affected the officials' ability to make policy decisions. Additionally, the Chairman may need to respond to a proposal from the U.S. Treasury Secretary, who suggested that the central bank should review its non-monetary policy functions to address the issue of "mission creep." The Chairman is expected to reiterate his focus on the responsibilities assigned by Congress, despite potential distractions during the news conference.