The Federal Reserve is expected to keep interest rates steady, between 4.25% and 4.50%. We won’t see any new Summary of Economic Projections until September. The statement should stay mostly the same, but we might see dissent from members Waller and possibly Bowman, who could push for a 25 basis points rate cut. Waller has a dovish outlook and has supported rate cuts before, while Bowman is more open to cuts based on current labor market and inflation trends. Chair Powell may hint at a rate cut in September, depending on economic data. If the labor market weakens or inflation goes down, a cut might be justified. However, if the data is strong, it could delay a cut. Right now, the market sees a 70% chance of a rate cut in September. Today’s decision is unlikely to greatly impact markets since much of this outcome is already expected, with changes only occurring if the situation deviates from these predictions.

Potential Surprises

Some potential surprises could include Waller voting to keep rates steady, which might shift the US dollar, stock market, and gold prices. If a third member dissents or Powell suggests he might consider larger cuts if needed, markets could react by adjusting dollar values, stock prices, and long-term bond yields. We do not expect any change to the federal funds rate today; it will likely stay at 4.25-4.50%. The detailed Summary of Economic Projections is on hold until the September meeting, meaning the focus will mainly be on the policy statement and the press conference. The key point to watch is the voting. Waller is likely to dissent in favor of a 25 basis point cut. Bowman might join him, but her conditions for a cut haven’t fully been met yet. The June jobs report, released early July 2025, showed a solid gain of 210,000 new jobs, which isn’t the weakness she sought, although the latest CPI report showed inflation dropping to 3.1%. Fed Chair Powell will likely leave the possibility of a rate cut open for September, stressing that it depends on incoming economic data. This aligns with current market views; the CME FedWatch Tool indicates a 72% chance of a cut at the next meeting. We’ve seen this data-driven approach throughout late 2023, leading to notable swings in options pricing.

Trading Implications

From a trading standpoint, today’s expected outcome is unlikely to cause any major changes since it’s already factored into the market. We anticipate one or two dissents for a cut, meaning real trading opportunities will arise only if the Fed surprises us. A hawkish surprise would come if Governor Waller votes with the majority to keep rates steady. This would suggest there’s less pressure to ease policy than believed. In this case, derivative traders should prepare for a stronger U.S. dollar and a dip in stocks and gold. Conversely, a dovish surprise would be a third dissenter voting for a cut, indicating that the committee leans more toward easing than expected. This could lead to a stock market rally and a weaker dollar. Another dovish sign might come from Powell during the press conference. If he mentions a possible 50 basis point cut in September or hints at more than two cuts for the year, it would represent a significant shift. This would likely trigger a similar effect to a third dissenter, although perhaps less intense. Create your live VT Markets account and start trading now.

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