Insights 
VT 
The Federal Reserve is anticipated to maintain interest rates between 4.25-4.50%, with no new Summary of Economic Projections provided until September. The statement is expected to remain mostly unchanged, except in noting dissent from members Waller and possibly Bowman, who may advocate for a 25 bps rate cut. Waller, known for his dovish stance, has previously suggested rate cuts, while Bowman’s recent openness to cuts is tied to labour market and inflation conditions.
Chair Powell might suggest a potential rate cut in September, contingent on economic data. A weaker labour market or reduced inflation could justify such a move, whereas stronger data might delay it. Currently, there is a 70% probability in the market for a September rate cut. Today’s decision is expected to have little immediate impact as much is anticipated, with changes in market dynamics contingent upon deviations from these expectations.
Potential Surprises
Potential surprises include Waller voting to sustain rates, possibly triggering market shifts in the US dollar, stock market, and gold. Conversely, if a third member dissents or Powell indicates readiness for larger cuts if necessary, markets could react by adjusting US dollar values, influencing stock prices, and impacting long-term bond yields.
We are not expecting any change to the federal funds rate today, with the target likely remaining at 4.25-4.50%. The detailed Summary of Economic Projections will not be released until the September meeting. This means the focus will be entirely on the policy statement and the press conference.
The main thing to watch will be the voting, where we expect to see Waller dissent in favor of a 25 basis point cut. Bowman could join him, although her conditions for a cut haven’t been fully met. The June jobs report, released early in July 2025, showed a solid 210,000 new jobs, which is not the softness she was looking for, even as the latest CPI report showed inflation cooling to 3.1%.
Fed Chair Powell will probably keep the door open for a rate cut in September but stress that it depends on incoming data. This aligns with current market sentiment, as the CME FedWatch Tool shows derivative markets are pricing in a 72% probability of a cut at the next meeting. We saw this data-dependent messaging throughout late 2023, which created significant swings in options pricing.
Trading Implications
From a trading perspective, today’s expected outcome is likely a non-event because it is already priced into the market. We know they are on hold, and we anticipate one or two dissents for a cut. Real trading opportunities in the coming weeks will only appear if the Fed delivers a surprise.
A hawkish surprise would be if Governor Waller votes with the majority to keep rates steady. This would signal less internal pressure to ease policy than currently believed. In that scenario, derivative traders should be prepared for a stronger U.S. dollar and a selloff in equities and gold.
On the other hand, a dovish surprise would be the emergence of a third dissenter voting for a cut. This would suggest the committee is leaning more towards easing than anyone expects. Such a development would likely cause the stock market to rally and the dollar to weaken.
Another dovish signal could come from Powell himself during the press conference. If he suggests that a 50 basis point cut is possible in September or that more than two cuts are on the table for this year, this would be a significant shift. This would likely have a similar, though perhaps less intense, effect as a third dissenter.
