Key Insights
- The Fed is expected to hold interest rates steady and delay any decision to cut rates.
- Two Fed governors may dissent and support a cut amid the ongoing rise in economic worries.
- The friction between Chair Powell and President Trump over rate policy is heating up so far.
The US financial markets expect no Fed Rate Cut when the Federal Reserve meets this week. This would mark the fifth consecutive time the Fed has left its short-term rate unchanged. The current range is 4.25–4.50%.
According to President Trump, though, the economy is strong enough to support a cut. He claims lower rates would ease borrowing costs for taxpayers. Fed officials, however, believe that inflation risks and a strong labour market contradict this.
Fed Is Likely to Hold Fed Rate Cut Steady
Most analysts expect no immediate Fed Rate Cut in the coming FOMC meeting. This is because inflation has rebounded, with headline inflation reaching 2.7% in June and core inflation at 2.9%. Both of them are above the Fed’s 2% target.
Fed Chair Jerome Powell and his colleagues are cautiously approaching these interest rate decisions. They now show signs of wanting to monitor how tariffs and consumer data react before easing policy.
As such, interest rates will remain steady to maintain price stability.
While this is happening, at least two board members, Christopher Waller and Michelle Bowman, might dissent. Both of these governors were appointed by Trump and support a near-term Fed Rate Cut, despite Powell’s reluctance.
Waller in particular, has expressed worry over slowing job growth and is supported by Bowman. Both see inflation from tariffs as temporary, and a dissent from them would be the first of its kind since 1993.
Trump vs. Powell Clash over Fed Rate Cut
Over the last few months, President Trump has amped up the pressure on Powell for a Fed rate cut. During a visit to the Fed’s $2.5B headquarters renovation site, he told reporters, “Interest rates have to come down.”
Trump has even repeatedly mentioned sacking Powell over costs and delays in the renovation project.
On the other hand, Powell continues to defend the independence of the FED. He has also maintained that firing him is not permitted by law. Powell might remain chair until his term ends in May of next year.
Mixed Economic Signals Are Making Things Worse
The economic picture is throwing mixed signals, meanwhile. While consumer spending remains strong, retail sales continue to rise.
According to JPMorganChase Institute data cited by Reuters, household cash reserves are improving slightly. On the other hand, Credit demand and loan volume are rebounding.
Yet while this is happening, housing and construction are lagging, and new home starts are near a year‑low. In addition, construction spending has declined for nine months, a pattern not seen since 2009.
Manufacturing output grew, but at a slower rate. Business investment weakened in June as capital goods orders dropped unexpectedly by 0.7%.
What If A Fed Rate Cut Happens?
Market pricing shows a Fed Rate Cut could happen in September, not July. Futures data from CME FedWatch shows odds that favor two cuts this year and two in the next.
This begs the question: What would a Fed rate cut mean for consumers, particularly in the crypto market? More importantly, what would happen if they remained unchanged?
If interest rates remain unchanged, the crypto market could remain stable over the short term. However, interest in crypto is expected to rise over the medium to long term. This could be seen as investors continue to seek higher yields in riskier assets.
If a rate cut were to happen, on the other hand, it would still be bullish for the crypto market. However, the effects would be more immediate than if the rates remained unchanged.
It is worth mentioning that low interest rates make borrowing cheaper. This injects more money into the financial system, which often flows into riskier assets like crypto..
In essence, interest rates are expected to remain unchanged. However, if a surprise cut happens, the market is expected to be fine.
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