The Federal Reserve will leave rates unchanged today but two dissenters are possible in a sign that the institution simply cannot avoid politicisation whatever its chair does.

Christopher Waller and Michelle Bowman — are possible “no” votes, the first multple dissent since 1993.

No one can really argue for a cut in this environment, so dissent is seen as polticisation which is going to be something international investors will be eyeing closely as Trump has repeatedly called on the Fed to cut rates aggressively. I don’t particularly see the merit teeing up a cut – either for Powell as he stares down Trump or for any good economic argument given the way the Fed has been happy to stand pat until now.

Fed for show, jobs for dough: Markets participants will be hooked on a) the dissent and b) Powell’s comments. Does he lean into any of their dovishness or push back: key question is whether he lays groundwork for a Sep cut overly, or continues to hold his cards close to his chest. With the market pricing in a 64% chance of a cut in September, it could reprice a little lower and give further near-term support to the dollar – particularly as investors seem to be unwinding dollar shorts against the backdrop of the EU-US trade deal, which has many thinking twice about their recent reallocation to European assets.

Inflation has been relatively benign but it’s the next few months that matter as that is when tariffs could bite. Month-on-month core PCE inflation has been 0.0%, 0.1% and 0.2% in the April-May period. This is hardly a worry as it stands but the direction is what matters, and the Jul-Sep data is going to tick higher. Jun’s data is tomorrow and expected to rise to +0.3%, or +2.70% annually. We could see it continue to tick up further on a monthly basis in the Jul-Sep period to 0.5% and 3.0% annually – a reason why the Fed won’t be pushing now for a September cut.

Meanwhile jobs data has also been solid, with consistent beats in the nonfarm payroll data the last fourth months. Friday’s report is expected to decline sequentially from 147k to 106k. But like the UK, the quality of the US jobs data looks pretty suspect.

Nevertheless, we are seeing weakness in the consumer and prices are expected to rise, whilst the true effect of tariffs are yet to be seen. It matters who absorbs the extra costs – higher prices and a resilient consumer, or steady prices and weaker corporates as companies wear the extra costs.

Dollar Lift?

Powell would need to sound pretty dovish to undermine the dollar’s recent rally much, particularly as there is significant risk ahead on Friday with the jobs report and tariff deadline.

The market is pricing in a better than evens chance of a cut (64%) by September, but this would likely require some pretty hefty downgrades in growth and employment both in terms of the outlook and hard data, given it’s likely to coincide with rising inflation from tariffs. Even though this inflation bump is fleeting, it could dissuade enough of the FOMC and critically the under-pressure Powell, from doing the president’s bidding.

EUR/USD - trying to make a stand at the 50-DMA but momentum seem to be with bears