Fed Rate Decision Imminent! Powell's Personal Stance the Key Variable as Wall Street Focuses on Four Key Points

For the past few years, Wall Street has often been able to predict the outcome of Federal Reserve (Fed) rate meetings in advance. However, for this July meeting, uncertainty remains until the very end.

Two weeks ago, the market consensus was to keep interest rates unchanged at 3.5%–3.75%. This was supported by cooling U.S. June inflation, which did not reach the hawkish threshold set by Fed officials. But after the U.S.-Iran ceasefire collapsed, pushing up energy prices, expectations for a July rate hike began to 'self-reinforce' last week.

As of 3:40 PM Taiwan time on Wednesday (29th), CME FedWatch data shows the probability of a Fed rate hike this week at approximately %, significantly higher than the recent norm of near-zero surprise.

Currently, Wall Street is focusing on four key points for this Fed meeting:

1. Rate Hike or Not: Hold as Baseline, Hike as a Gamble

Maintaining rates unchanged remains the most likely scenario, consistent with June CPI data and recent Fed officials' comments. Jerome Powell's five-hour congressional testimony two weeks ago also gave no signal of action. However, if a rate hike does occur, it would mark a major policy shift, overturning the 'steady' faction's dominance within the FOMC and weakening the credibility of future official guidance. More subtly, it would contradict the White House's year-long stance that 'rates are too high, inflation is under control,' while also dispelling rumors that Powell blindly follows Trump.

Nomura and Bank of America both note that if a surprise hike occurs, the justification won't come from FOMC pre-signals, but from Powell's personal desire to reaffirm the Fed's credibility on the 2% inflation target amid energy shocks.

2. Dissenting Votes: 2–4 Hawkish Votes to Determine Short-Term Market Fate

Analysts expect that even if rates are held steady, the number of dissenting votes will drive market reactions. Waller and Cook have stated they would 'consider tightening if inflation stalls.' Cleveland Fed President Mester and Dallas Fed's Logan, both voting members this year, are the most hawkish. Logan advocates 'moderately raising the policy rate to balance risks,' while Mester says 'a rate hike may be necessary.'

The market widely expects Mester and Logan to vote for a hike. If one or more officials join them, the risk of a simultaneous sell-off in stocks and bonds rises sharply. The last meeting had zero dissenting votes; if three or more vote for a hike tonight, it will be interpreted as a clear prelude to a September hike.

3. Statement Framework: Scrutinizing Subtle Wording in a 130-Word Minimalist Text

Powell's debut last month trimmed the statement to about 130 words, removing all forward guidance and leaving only 'committed to returning to 2%.' Morgan Stanley expects the statement to remain largely unchanged, likely reiterating 'ample reserve balances,' 'solid expansion of economic activity,' 'little change in unemployment,' and 'elevated inflation.' However, markets will dissect every word for signs of rigidification or new mentions of energy/tariff risks.

4. Powell's Remarks: Interpretation Rights Shape the Yield Curve

If rates are held, markets will ask, 'Why miss a good opportunity to hike? What conditions would trigger action?' If a hike occurs, the rationale will determine the path forward. Bank of America analyst Stephen Juneau warns that without a reasonable explanation, markets may fall into confusion over 'why hike when inflation is slowing.' But if the hike is framed as 'correcting the persistent failure to reach 2%,' it could signal the start of multiple tightening cycles, potentially causing long-term bond yields to fall instead.