By Matthew Ryan, Head of Market Strategy Ebury International Payments Company

Following the revelation of Trump’s duties on April 2, markets rushed to discount a more aggressive rate of interest rates in the US in 2025, amid speculations that commercial restrictions would trigger a slowdown in the world’s largest economy. However, not only are agreements being signed (especially with the EU and Japan), but this deceleration has not yet appeared.

US growth seems to have consistently recovered in the second trimester, after a single moderate shrinkage in the first quarter. The PMI indicators of business are moving upward, consumption appears durable and the labor market continues to create jobs at a steady pace. At the same time, inflation in the US was re -launched in June, reaching a four -month high to 2.7%.

All this means that the Fed is almost certain that will maintained the interest rates unchanged this weekwith the markets for future fulfillment not to be virtually discounting any possibility of a decrease. President Powell has repeatedly stated that the bank expects more clearly about the state of trade and the impact of duties on the US economy, a statement that is likely to repeat at a Wednesday press conference.

While duties are likely to have a negative impact on US growth, they are also expected to operate inflationary, even temporarily, which means that, without further data, neither time nor the rate of reductions are particularly clear.

OR Voting for interest rates, however, may not be unanimousas Waller and Bowman members (who were both appointed by Trump during his first term in the White House) are preference for a reduction in July. Although it is not unprecedented for Fed officials to disagree, it is quite rare. According to our calculations, about 85% of FOMC meetings since the beginning of 2020 had a unanimous vote, and the last time two commanders (and not just members with the right to vote) disagreed at the same meeting was more than three decades in 1993. An interesting secondary information is that Christopher Waller President of the Fed, and his disagreement would undoubtedly like the president.

The investors will also be careful at Powell’s press conference for Indications on the probability of decreasing in Septemberwhich remains the basic scenario of the market (66% is discounted by future fulfillment contracts). We believe that Powell will refer again to the performance of the labor market, which he will probably describe again as “stable”. Powell could warn again that the Fed expects inflation in the US to be higher during the summer as a consequence of duties. We suspect that it can also repeat the phrase that the Fed will learn a lot during the summer, though we do not believe it will reach the point of reporting the September meeting in this context. Fed is currently in a rather difficult position. One could argue that the risks to growth from increased commercial uncertainty would justify greater relaxation of politics.

However, with the latest financial data being maintained quite well and with the inflationary impacts of duties yet not fully implemented, we do not believe that policy makers are still able to “click on the trigger” for lower interest rates, or even mark that interest rates. The adoption of a careful “waiting and surveillance” attitude we believe would leave the door open in a reduction in September, but without a steady commitment to it.

In terms of Reaction to the currency market: observations that will emphasize the US Labor Market Powerwhile expressing concerns about excessive increase in inflation, would probably strengthen the dollar, especially given the extent of depreciation from the beginning of the year. Conversely, we could see some dollar drop if Powell says that the sharp rise in inflation caused by duties is temporary.

FOMC’s decision on interest rates and financial forecasts will be announced at 18:00 GMT (19:00 CET) on Wednesday, with President Powell’s press conference following 30 minutes later.