Rare presidential pressure: No rate cut expected, but Powell's press conference a must-see

Author: Li Xiaoyin, Wall Street Journal

The Federal Reserve's FOMC meeting will take place on Wednesday local time under multiple pressures, and Chairman Powell may face the most critical moment of his tenure.

While the market almost universally expects interest rates to remain unchanged at this meeting, Trump's public pressure on Powell, policy disagreements within the committee, and market concerns about the central bank's independence make this meeting politically significant.

Trump has recently repeatedly urged Powell to cut interest rates, even threatening to fire the central bank chairman. Last week, he made a surprise visit to the Fed headquarters to apply pressure, further fueling market concerns about the Fed's independence.

There are also rare signs of division within the Fed. Previously, both Fed Governor Waller and Vice Chairman Bowman publicly supported a rate cut. If the committee decides to keep interest rates unchanged and two dissenters vote, it would mark the first time in 30 years that two governors have dissented simultaneously at a single meeting. Analysts believe any sign of eroded central bank independence could push up consumer borrowing costs and negatively impact the economy. The central question facing Powell at Wednesday's press conference isn't the level of interest rates, but whether he will remain on the board after his term as chairman ends next May. Trump's pressure on Powell has significantly intensified in recent weeks. He has not only personally disparaged Powell but also threatened to fire him over the $2.5 billion renovation bill for the Federal Reserve headquarters and even made a surprise visit to the Fed headquarters to pressure him. Benson Durham, Piper Sandler's head of global policy and asset allocation, called Trump's visit "a most absurd, shocking, and clichéd stunt" intended to intimidate Powell. He believes Trump is trying to make Powell uncomfortable, prompting him to relinquish his seat on the Board of Governors at the end of his term as Chairman.

After visiting the Fed, Trump stated that he had a private conversation with Powell about interest rates and stated, "My impression is that Powell may be ready to cut rates." Chris Hodge, chief U.S. economist at Natixis CIP Americas, believes Trump's move is intended to create expectations that Powell will cut rates in September, thereby forcing Powell into a "loose corner."

However, Julia Coronado, a former senior Fed staffer and president of MacroPolicy Perspectives, stated that Trump's attempt to intimidate the central bank chairman will not succeed. She noted: "The view that Powell is easily cornered or pressured ignores everything we know about him." A dual division has emerged within the Fed for the first time in 30 years. In addition to external pressure, Powell faces challenges from within. Fed Governor Waller and Vice Chairman for Supervision Bowman have publicly expressed support for a rate cut at the upcoming policy meeting. Previously, Waller believed that the inflation caused by tariffs would be quickly transmitted through, citing declining consumer spending and weak labor demand as reasons for a rate cut now. Bowman recently joined the supporters, stating that if inflation continues to ease, "it is time to seriously consider a rate cut." If the committee decides on Wednesday to keep the federal funds rate unchanged in a range of 4.25% to 4.5%, and Waller and Bowman vote to support easing policy, it would mark the first time since December 1993 that two governors have disagreed with the chairman at the same meeting. Of the 60 meetings supported by Powell, only about 16% saw at least one dissenting vote, and only 3% of the decisions had a governor dissenting. Vincent Reinhart, chief economist at BNY Investments and a former Federal Reserve economist, noted that governors are more likely to dissent toward the end of a chairman's term because a dissenting vote can serve as a "bargaining chip," prompting the chairman to give more attention to their views in post-meeting statements or press conferences. Market expectations remain unchanged, but a September rate cut remains uncertain. Powell has consistently urged patience, expressing a desire to observe the impact of tariffs and only cut rates after gaining greater confidence that inflation will sustainably fall to 2%. However, US CPI inflation rebounded to 2.7% in June, indicating that the price transmission effects of tariffs are continuing to intensify. Currently, federal funds futures trading data suggests the probability of a rate cut at the July meeting is almost zero. Former St. Louis Fed President James Bullard believes the Fed has room to cut rates, with September being a good option. According to the CME FedWatch tool, the market's expectation of a 25 basis point rate cut in September is slightly over 60%. However, most economists remain cautious. Coronado noted that two employment reports and two CPI reports are still to be released before the September meeting, and these data will be key to the decision. "Inflation data is likely to pick up between August and October, which would make it difficult for the Fed to cut rates before December. I think even December is a bit uncertain," said Jonathan Millar, senior U.S. economist at Barclays.