Fed Rate Cut Speculation: July Hike Unlikely
Speculation regarding a potential Federal Reserve interest rate cut in July is swirling, fueled by comments from Federal Reserve Governor Christopher Waller. While Waller indicated the Federal Open Market Committee (FOMC) could consider a cut, this stance contrasts with Chair Jerome Powell's preference for a wait-and-see approach. This divergence in opinion follows the release of the June FOMC minutes and amidst calls from former President Trump for immediate rate reductions.
Waller's Call for a July Rate Cut
At a recent Federal Reserve Bank of Dallas event, Waller stated that the current policy rate is restrictive and the Fed may be too tight, suggesting a rate cut could be considered this month. This perspective is offered despite concerns highlighted in the July FOMC minutes regarding potential inflationary pressures from past tariffs. Waller advocates looking beyond these tariff-related price impacts and focusing on the possibility of a rate cut.
This isn't the first time Waller has suggested a July rate cut. He previously indicated a rate cut could occur as early as July, citing the diminished threat of inflation. His position aligns with calls from former President Trump, who has repeatedly urged Chair Powell to implement significant rate cuts, arguing that there is no current inflationary pressure.
While the former President has used the strength of the Bitcoin price and stock market as justification for rate cuts, Chair Powell maintains that the US economy is strong enough to allow the Fed to observe the effects of tariffs on inflation before taking action. This difference of opinion has led to tension between the former President and the Fed Chair.
Interestingly, Waller has been mentioned as a potential successor to Powell, though market probabilities (Polymarket) suggest only a 6% chance of this occurring.
Market Sentiment Against a July Rate Cut
Despite Waller's suggestion, market sentiment strongly indicates against a rate cut in July. Polymarket data reveals a 95% probability of the Fed maintaining interest rates unchanged at the July 30th FOMC meeting. This prediction is reinforced by CME FedWatch data, showing a 93.3% chance of no change in interest rates.
This decreased likelihood of a July cut followed the release of June's US job data, highlighting a robust labor market, diminishing the perceived need for an immediate rate cut.
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