How many dissenting votes will there be at the July FOMC meeting?

At this month's Federal Reserve interest rate meeting, whether to cut interest rates is no longer the only issue that the market is focusing on. Instead, "who supports, who opposes" has become the biggest point of interest. According to ZFT trading platform, a recent report from Standard Chartered Bank pointed out that the July 30th meeting of the Federal Reserve interest rate meeting may see a rare occurrence of two board members voting against, implying that the rate cut process is about to begin: Federal Reserve board members Bowman and Waller are expected to oppose maintaining the interest rates and instead support a 25 basis point cut, marking the first time since 1993 that two board members have voted against at the same meeting. This unusual divergence may indicate a significant shift in the Federal Reserve's policy stance, and the market may interpret these two opposing votes as a precursor to a more dovish stance by the FOMC, prompting further positive reactions. The two board members have clearly expressed their support for a rate cut in July. According to previous reports from Wall Street News, Waller has already stated that he supports a rate cut in July at the earliest, as he believes the FOMC should view tariff-driven price increases as a one-off factor. Waller does not believe that the labor market is strong enough to sustain a second round of wage and price increases. Similarly, Bowman also stated, "If inflationary pressures remain under control, I will support lowering policy rates at the earliest in the next meeting." Both board members see the risks of weakening in the labor market. This indicates that there is a high possibility of two opposing votes at the FOMC meeting in July, opposing the status quo. This is also the first time since 1993 that two board members have voted against at the same meeting. In the Federal Reserve system that emphasizes consistency, this divergence itself is an important signal. Unusually divided FOMC vote Internally, this may be interpreted as a weakening of Powell's "consensus-building ability." For decades, FOMC voting consistency has been the norm rather than the exception. Powell seems more inclined to postpone policy actions and let the data speak more clearly if that is what is needed for consensus. Standard Chartered believes that this may slow down the Federal Reserve's response speed to changing conditions, even if it means reducing regrets about premature actions. Consistency helps the FOMC to speak in a unified voice, but it may also mean that policy ambiguity and disagreements are not fully discussed. Forward guidance may still be part of the Federal Reserve's toolbox under any framework, but its effectiveness may be reduced if not all FOMC members support it. The report also points out that the two opposing votes may not only be interpreted as implicit criticism of Powell and the Federal Reserve, but also as a response to political pressures from the Trump administration. Since the 50 basis point rate cut in September last year, the Federal Reserve has been unable to dispel doubts about political considerations affecting monetary policy. If it becomes increasingly believed that Republican or Democratic FOMC members are voting collectively, these doubts may intensify. Market may react positively Externally, the market may see this as a prelude to a policy shift: even if there is no rate cut in July, action in September or December is more likely. Standard Chartered believes that the market may react positively to the appearance of opposing votes, expecting more rate cuts in 2025 and 2026, leading the front end of the US bond yield curve to steepen. Based on data from May onwards, there is a positive correlation between the US dollar and short-term interest rates, and a decrease in short-term interest rates may pose a resistance to the US dollar. The US stock market has reacted positively to data releases that increase the likelihood of rate cuts in the past, and may benefit from this. Labor market data supports the rate cut argument The latest June non-farm payroll data may not be enough to support the Federal Reserve's hawkish stance. Private sector hiring performance was lower than expected, and although the unemployment rate decreased, the employment-to-population ratio remains at a cyclical low. These data, along with low inflation, provide a reasonable but not overwhelming reason for a rate cut in July. The main risk of opposing votes is that it may be seen as Powell's failure to maintain consistency in FOMC's policy direction - especially considering the recent criticism of Powell and the Federal Reserve's decision to maintain current interest rates. This may also increase scrutiny of speeches by other FOMC voting members, especially if they indicate a willingness to deviate from Powell's policy stance of wait-and-see. It is worth noting that Powell recently admitted in congressional testimony that the FOMC would have cut interest rates if not for the risk of sustained inflation caused by tariffs. The debate between hawks and doves seems to be more focused on the possibility of sustained inflation rather than a reaction to inflationary overhang. This article is reproduced from "Wall Street News", author: Bu Shuqing; GMTEight editor: Liu Jiayin.