Federal Reserve Rate Hike Possibility Despite Committee Majority's Stance

The Federal Open Market Committee may see at least one dissenting vote regarding a 25 basis point rate cut at their meeting. However, most members are likely to recommend no change in the target rate. Despite this, some experts believe the Fed might need to raise the target rate at some point during the year.

The Federal Open Market Committee (FOMC) is set to convene this week, with a contentious debate expected over the possibility of a 25 basis point rate cut. While most members are anticipated to recommend no change in the target rate, some experts argue that the Fed might need to raise the target rate later this year.

Fed Chair Jerome Powell faces intense pressure from President Donald Trump and his allies to reduce borrowing costs. However, the central bank is widely expected to leave its benchmark rate unchanged at the conclusion of its two-day meeting on July 30. This decision is based on the need for more data to assess the impact of tariffs on consumer prices [1].

The rate decision will be closely watched, especially as it coincides with a week filled with key economic data releases, including the monthly employment report due on Friday. Economists expect the report to show a slowdown in hiring, reflecting uncertainty around Trump’s trade policy [1].

Two Fed appointees, Christopher Waller and Michelle Bowman, have hinted at dissenting votes. Waller, in particular, has expressed concern that rates are too high given rising risks to employment. Bowman has also indicated that she could support a rate cut if price pressures remain subdued [1].

While the Fed is cautious about inflation, recent data shows that price increases for some goods affected by tariffs are evident, but underlying inflation remains below expectations. This suggests that the impact of tariffs on prices may not be as severe as initially anticipated [1].

In a recent speech, Waller stated that the Fed should reduce its policy rate by 25 basis points at the next meeting. However, most FOMC members are expected to recommend no change in the target rate. This highlights a potential divide within the committee, with some members focusing on employment concerns and others prioritizing inflation control [2].

Despite the expected rate cut, some experts believe that the Fed might need to raise the target rate later this year. The current target rate of 4.25% to 4.50% seems about right, given the low unemployment rate and somewhat elevated inflation. However, the Fed may be hesitant to admit this due to political pressure from Trump and Congress [2].

In a press conference following the meeting, Powell is likely to field questions about tariffs and inflation. He is expected to remain cautious, reiterating the Fed's commitment to maintaining price stability. Powell may also acknowledge that better-than-expected data and recently-announced trade deals reduce the likelihood of a worst-case scenario for inflation, potentially opening the door to a September rate cut [1].

By the time the FOMC gathers for its September meeting, it will have more data on inflation, spending, and housing. This could put the committee in a position to lower rates unless there is an aggressive escalation of tariffs or inflation data surprises to the high side [1].

In conclusion, the upcoming FOMC meeting promises to be contentious, with debates centered around employment concerns and inflation control. While a rate cut is expected in the fall, some experts believe that the Fed might need to raise the target rate later this year to maintain price stability.

References:
[1] https://www.bloomberg.com/news/articles/2025-07-27/fed-is-set-for-contentious-debate-as-investors-eye-fall-rate-cut
[2] https://www.wsj.com/opinion/dont-rule-out-a-rate-hike-the-fed-inflation-9e9a36ff