Dissent is in the air' ahead of Fed meeting

The vote on rates may not be a unanimous one, however, with members Waller and Bowman (who were both appointed by Trump during his first stint in the White House), voicing a preference for a July cut. While it's not unheard of for Fed officials to dissent, it is quite rare.

By our reckoning, approximately 85% of FOMC meetings since the start of 2020 have yielded a unanimous vote, and the last time that two governors (rather than merely voting members) dissented at the same meeting was over three decades ago in 1993.

An interesting subplot is that Christopher Waller is one of the names in the fray to replace Powell as the next Fed chair, and his dissent would no doubt go down well with the president.

Investors will also be attentive to Powell’s press conference for clues as to the possibility of a September cut, which remains the market’s base-case scenario (66% priced in by futures).

We think that Powell will again talk up the performance of the labour market, which he will again probably describe as “solid”. Powell could again warn that the Fed expects US inflation to be higher over the summer as a consequence of the tariffs.

We suspect that he may also repeat the line that the Fed would learn a lot over the summer, although we do not think he will go so far as to mention the September meeting in this context.

The Fed is currently in a rather tough spot.

One could argue that the growth risks posed by heightened trade uncertainty would warrant greater policy easing.

Yet, with the latest economic data holding up quite well, and with the inflationary implications of the tariffs yet to fully materialise, we don’t think that policymakers are yet in a position to pull the trigger on lower rates, or even signal that rate cuts are imminent.

The adoption of a cautious, wait-and-see stance would, we believe, keep the door open to a September cut, while not firmly committing to one either.

As far as the FX reaction is concerned, remarks that talk up the strength of the US labour market, while expressing concerns over an overshoot in inflation, would likely buoy the dollar, particularly given the extent of the depreciation since the start of the year.

Conversely, we could see some downside in the greenback should Powell express confidence over the temporary nature of the tariff-induced inflation spike, while explicitly saying that the Fed would have learned a lot by the September meeting.