FED: Lack Of Support For A July Cut, But It's Still Live (1/3)

Heading into Thursday's employment report, implied probability of a 25bp cut in July is around 22% (having briefly pushed through to 25% after the surprise ADP payrolls contraction - see chart). Given what we've heard from FOMC officials since the June meeting, it would probably take a very weak report, including an unemployment rate above 4.3% in June, to force the FOMC off the sidelines on July 30.

• To be sure, July is still "live" though again probably contingent on clear evidence of labor market deterioration tomorrow. The current odds are better than the 10% probability seen immediately after the June FOMC meeting, in which Powell was seen to have largely taken July off the table ("it takes some time" for tariffs to be seen in prices he said then; "we feel like we're going to learn a great deal more over the summer on tariffs").
• Powell caused a minor stir on July 1 when he didn't refute the possibility of a rate cut at the July  meeting: "Yeah,I really can't say - it's going to depend on the data. And we are going meeting by meeting. I mentioned, you know, how I'm thinking about that, but I wouldn't take any meeting off the table or put it directly on the table, it's going to depend on how the data evolve."
• Forcefully pushing back on it would have been too abrasive an approach for Powell, given a growing if small group of likely dissenters to a hold in July. Though only two FOMC members have said that they would/could support a July rate cut, but both are permanent voters on the Board: Vice Chair Bowman ("I would support lowering the policy rate as soon as our next meeting ") Gov Waller (“I think we’re in the position that we could do this and as early as July").
• As we mused after Bowman's surprising dovish turn, we could easily see two dissents to a likely July rate hold, and she and Waller are likely the 3-2025 cut Dots in the June SEP.
• We haven't heard any other FOMC participants say they were seriously considering supporting a cut at the next meeting, with various members that see two cuts this year eyeing a later restart to easing (Daly / Kashkari specifically mentioned the fall/September respectively).