Fundamental Analysis:

• It is widely expected that the Federal Open Market Committee will leave interest rates unchanged, but markets anticipate opposition from Governors R. and Powell, given their recent comments — a situation not seen since 1993, amid increasing political pressure on Chairman Powell.

• Other policymakers at the Federal Reserve largely follow a patience-and-watch approach due to uncertainty about the impact of tariffs and delays in implementing them; new tariffs are not scheduled to take effect until August 1. Although tariffs on China were set to be implemented on August 12, recent talks aim to extend this deadline by at least three months to avoid tariffs of 145% on the U.S. side and 125% on the Chinese side.

• Attention at the press conference will focus on Fed Chair Jerome Powell to see if he provides any guidance on future interest rate moves or whether it is time to cut rates soon, based on incoming data. The Fed has been hesitant to commit to future moves amid ongoing trade policy uncertainty.

• During the press conference, Powell is likely to be questioned about his future prospects, as President Trump has continued to criticize him. Powell usually avoids such questions, emphasizing his focus on the Fed’s mandate. He may also be asked about the accuracy of recent data, as many economists are increasingly concerned about potential data distortion and its impact on Fed policy.

• Our expectations:
  It is widely expected that the Federal Reserve will keep interest rates unchanged in July, as the latest Reuters survey of 105 economists unanimously predicts this outcome. Financial markets also largely factor in maintaining rates, with only a 3% chance of a 25 basis point cut.

• Looking into the future, economists appear more divided, with 56 out of 105 economists surveyed expecting a rate cut in September. Financial markets priced in approximately 17 basis points of easing, implying a 68% likelihood of a 25 basis point rate cut.

• Goldman Sachs anticipates three 25 basis point rate cuts this year in September, October, and December, followed by another two cuts in 2026, bringing the final interest rate to between 3% and 3.25%. The Federal Reserve has been hesitant to commit to future moves, but it will be important if they provide guidance at the September meeting or if Powell hints at such a step. However, Morgan Stanley suggests that Powell is likely to state that it’s still early days until September, with plenty of data to come before then.

• Recent data has focused on inflation, with little evidence of significant rising inflation in face of tariffs, although June data showed the initial impact, with a 0.7% increase in commodity inflation. There remains uncertainty about the effect of tariffs on inflation, with some fearing a lasting impact. A key point to watch in Q&A sessions is whether Powell will be questioned about the accuracy of US economic data.

• A recent Reuters survey showed that 89 out of 100 economists expressed concerns about the quality of official US economic data, with 41 indicating high concern. Interestingly, none of them raised data accuracy issues during the Biden administration, while 71 out of 87 respondents believe US authorities are not addressing data accuracy challenges with sufficient urgency. Additionally, 66 expressed worry about how the quality of US statistics could influence Federal Reserve policy decisions.

• We expect the most significant change since the June Federal Open Market Committee meeting is that economic activity data have begun to indicate clearer signs of below-expected growth, which most forecasters anticipated. This slowdown became evident in spring, with the realization that significant tariffs increases were imminent, and it is concerning that this slowdown occurred before the likely peak impact of trade war effects. While this has strengthened the case for rate cuts, inflation, employment data, and divergent views among FOMC participants have left the timing of the first cut uncertain for now.