A rare split at the Fed? How will the market interpret the emergence of a third dovish member?
2025-07-29 21:55:30
The Federal Reserve's interest rate decision may see a rare split, with both Bowman and Waller favoring an early rate cut. If more governors join the dovish camp, market confidence in policy consistency could be undermined. Powell's tone in his press conference will be a key focus, particularly his comments on the robustness of the labor market and the risks of tariff-related inflation. Despite generally strong economic data and robust bond demand, the Fed is inclined to hold its ground for now, maintaining policy flexibility. Against this backdrop, the US dollar is likely to remain relatively strong, but further signals of a September rate cut could put pressure on the dollar.
This Federal Reserve interest rate decision carries the risk of a split vote. Both Bowman and Waller, appointed to the Fed Board during the first Trump administration, have recently expressed a clear preference for a rate cut in July. Dissenting governors are not uncommon, but it is unusual for two governors to speak out in unison at the same meeting. The last time this happened was over 30 years ago in 1993.
Statistics show that since the beginning of 2020, approximately 85% of FOMC meeting decisions have been unanimous. The last time two governors (voting and non-voting members) dissented in the same meeting was in 1993. If a similar structural disagreement occurs this time, it will be a significant signal for the financial market landscape.
Analysts believe that Waller, a potential candidate for future Fed Chair, will undoubtedly enhance his political appeal if his dovish stance aligns with the president's. For traders, the real focus will be Powell's press conference: the market has already priced in a roughly 66% probability of a September rate cut through futures pricing, and investors will be watching to see if his press conference provides further confidence for a rate cut.
Analysts believe Powell is likely to reiterate the "robust" performance of the US labor market and warn that the summer tariff shock could put upward pressure on inflation. While he may reiterate the Fed's official statement that "lessons will be learned over the summer," he is not expected to explicitly mention the September meeting in this context. This language will avoid prematurely signaling a rate cut while maintaining policy flexibility and keeping options open.
If Powell emphasizes the resilience of the labor market and vigilance against potential inflation risks, the US dollar may strengthen due to the recovery in risk appetite; on the contrary, if he expresses confidence that tariff inflation is only a short-term peak and makes it clear that "we will have enough information by the September meeting", the US dollar may come under pressure.
The Fed currently finds itself in a delicate position: on the one hand, heightened trade uncertainty poses growth risks, seemingly prompting a policy easing approach; on the other hand, the latest economic data suggests continued strength, and the inflationary effects of tariffs have yet to fully materialize. Consequently, analysts believe that policymakers are not yet in a position to initiate or explicitly signal a rate cut.
A cautious "watch and wait" approach would preserve the option of a September rate cut without requiring an advance commitment, which is in line with the current situation. Meanwhile, signs of a recovery in consumer confidence are providing further support for the dollar.
The real key to market direction will be the internal alignment of the FOMC. The market generally expects at least two board members to support an immediate rate cut; if three or more dissenters emerge, this could undermine market confidence in the policy consensus. While the stock market may prefer a dovish signal, concerns remain about the Fed's internal disunity. Cracks in the board's structure could themselves trigger unstable expectations.
Some analysts believe that although trade risks may ease in the short term, real uncertainties have not been eliminated. Most so-called "trade agreements" are not legally binding, and the president can still adjust terms or tariffs, which means that potential policy changes may occur at any time; a brief recovery in market sentiment may increase the risk premium of the US dollar, but structural risks have not been eliminated.
Recent strong performances in U.S. Treasury auctions have been a key factor in the dollar's bullish outlook. According to Reuters, bidding for two-year Treasury notes was "very active," with approximately 90% of buyers being non-dealers, indicating a high participation rate among institutional and retail traders. Similarly, 89% of bids for 20-year reissued bonds were taken by non-dealers; bonds of this maturity typically receive less attention, but still showed strong demand.
This strong demand highlights relative risk aversion, supports demand for the US dollar, and keeps the bond yield structure and risk appetite stable, helping the Fed maintain a wait-and-see approach to policy.
While the current dollar rebound is driven by what Reuters calls a decline in the "tariff risk premium," analysts believe this is merely a superficial easing of market sentiment, with real uncertainty remaining. While trade frictions appear to be easing, risks remain, and the market's perceived sense of relief is driving the dollar's rebound. Analysts believe this is likely a sustained, structural rebound rather than a temporary correction.
Looking at the Fibonacci retracement constructed from the low of the euro against the dollar on January 10 to the high of July 1: the 38% retracement level is 1.1202, the 50% retracement level is 1.1007, and the midpoint is about 1.1090; it is expected that the euro may fall sharply against the dollar, while the dollar is expected to continue its rebound trend; European exporters will benefit from the weakness of the euro, and although Trump often prefers a weak dollar, the currencies of different countries tend to move in opposite directions.
The most important focus of this Fed meeting isn't whether or not a rate cut will occur immediately, but whether cracks appear within the voting structure. In particular, if a third or more board members, in addition to Bowman and Waller, express a dovish stance, market confidence in policy consistency will be undermined. The wording of Powell's press conference will determine market expectations regarding the pace of the cut and the direction of the US dollar. Given the current robust economic data, the pending impact of tariff inflation, and the continued strong demand in the bond market, the Fed remains committed to a strategy of "keeping options open and not rushing to a decision."
Traders are paying attention to three important factors: the voting results of the meeting (especially the number of dissenting directors), the wording of Powell's press conference (especially the wording on the labor market, inflation and the "summer learning period"), and the upcoming employment data to determine whether the Fed will launch a new round of policy easing cycle and whether the medium-term trend of the US dollar will be reshaped as a result.
Split vote: rare dual dissent by directors
This Federal Reserve interest rate decision carries the risk of a split vote. Both Bowman and Waller, appointed to the Fed Board during the first Trump administration, have recently expressed a clear preference for a rate cut in July. Dissenting governors are not uncommon, but it is unusual for two governors to speak out in unison at the same meeting. The last time this happened was over 30 years ago in 1993.
Statistics show that since the beginning of 2020, approximately 85% of FOMC meeting decisions have been unanimous. The last time two governors (voting and non-voting members) dissented in the same meeting was in 1993. If a similar structural disagreement occurs this time, it will be a significant signal for the financial market landscape.
Analysts believe that Waller, a potential candidate for future Fed Chair, will undoubtedly enhance his political appeal if his dovish stance aligns with the president's. For traders, the real focus will be Powell's press conference: the market has already priced in a roughly 66% probability of a September rate cut through futures pricing, and investors will be watching to see if his press conference provides further confidence for a rate cut.
Powell's press conference focus: How wording affects market expectations
Analysts believe Powell is likely to reiterate the "robust" performance of the US labor market and warn that the summer tariff shock could put upward pressure on inflation. While he may reiterate the Fed's official statement that "lessons will be learned over the summer," he is not expected to explicitly mention the September meeting in this context. This language will avoid prematurely signaling a rate cut while maintaining policy flexibility and keeping options open.
If Powell emphasizes the resilience of the labor market and vigilance against potential inflation risks, the US dollar may strengthen due to the recovery in risk appetite; on the contrary, if he expresses confidence that tariff inflation is only a short-term peak and makes it clear that "we will have enough information by the September meeting", the US dollar may come under pressure.
The delicate balance between economic data and policy trends
The Fed currently finds itself in a delicate position: on the one hand, heightened trade uncertainty poses growth risks, seemingly prompting a policy easing approach; on the other hand, the latest economic data suggests continued strength, and the inflationary effects of tariffs have yet to fully materialize. Consequently, analysts believe that policymakers are not yet in a position to initiate or explicitly signal a rate cut.
A cautious "watch and wait" approach would preserve the option of a September rate cut without requiring an advance commitment, which is in line with the current situation. Meanwhile, signs of a recovery in consumer confidence are providing further support for the dollar.
Voting rifts and the impact of market sentiment
The real key to market direction will be the internal alignment of the FOMC. The market generally expects at least two board members to support an immediate rate cut; if three or more dissenters emerge, this could undermine market confidence in the policy consensus. While the stock market may prefer a dovish signal, concerns remain about the Fed's internal disunity. Cracks in the board's structure could themselves trigger unstable expectations.
Some analysts believe that although trade risks may ease in the short term, real uncertainties have not been eliminated. Most so-called "trade agreements" are not legally binding, and the president can still adjust terms or tariffs, which means that potential policy changes may occur at any time; a brief recovery in market sentiment may increase the risk premium of the US dollar, but structural risks have not been eliminated.
Bond Market Performance and US Dollar Credit Confidence
Recent strong performances in U.S. Treasury auctions have been a key factor in the dollar's bullish outlook. According to Reuters, bidding for two-year Treasury notes was "very active," with approximately 90% of buyers being non-dealers, indicating a high participation rate among institutional and retail traders. Similarly, 89% of bids for 20-year reissued bonds were taken by non-dealers; bonds of this maturity typically receive less attention, but still showed strong demand.
This strong demand highlights relative risk aversion, supports demand for the US dollar, and keeps the bond yield structure and risk appetite stable, helping the Fed maintain a wait-and-see approach to policy.
Medium-term outlook for foreign exchange and the US dollar
While the current dollar rebound is driven by what Reuters calls a decline in the "tariff risk premium," analysts believe this is merely a superficial easing of market sentiment, with real uncertainty remaining. While trade frictions appear to be easing, risks remain, and the market's perceived sense of relief is driving the dollar's rebound. Analysts believe this is likely a sustained, structural rebound rather than a temporary correction.
Looking at the Fibonacci retracement constructed from the low of the euro against the dollar on January 10 to the high of July 1: the 38% retracement level is 1.1202, the 50% retracement level is 1.1007, and the midpoint is about 1.1090; it is expected that the euro may fall sharply against the dollar, while the dollar is expected to continue its rebound trend; European exporters will benefit from the weakness of the euro, and although Trump often prefers a weak dollar, the currencies of different countries tend to move in opposite directions.
Conclusion
The most important focus of this Fed meeting isn't whether or not a rate cut will occur immediately, but whether cracks appear within the voting structure. In particular, if a third or more board members, in addition to Bowman and Waller, express a dovish stance, market confidence in policy consistency will be undermined. The wording of Powell's press conference will determine market expectations regarding the pace of the cut and the direction of the US dollar. Given the current robust economic data, the pending impact of tariff inflation, and the continued strong demand in the bond market, the Fed remains committed to a strategy of "keeping options open and not rushing to a decision."
Traders are paying attention to three important factors: the voting results of the meeting (especially the number of dissenting directors), the wording of Powell's press conference (especially the wording on the labor market, inflation and the "summer learning period"), and the upcoming employment data to determine whether the Fed will launch a new round of policy easing cycle and whether the medium-term trend of the US dollar will be reshaped as a result.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
