Federal Reserve Chair Kevin Warsh is under significant pressure to raise interest rates at the upcoming Federal Open Market Committee (FOMC) meeting, scheduled to conclude on September 16. This comes as surprisingly healthy employment data, showing 162,000 jobs added in August and an unchanged unemployment rate of 4.1%, has tipped expectations towards a rate hike. Interest rate traders now place the likelihood of a 25 basis point hike to 3.75% to 4% at 58.4%.
Inflation data further strengthens the case for a hike, with the latest Bureau of Labor Statistics report in mid-August showing the all-items index at 3.4% for the past 12 months, well above the FOMC's 2% target. Analysts anticipate that the next Consumer Price Index report, due on Friday, will further underscore the need for a rate increase, citing ongoing supply-side shocks such as the Middle East conflict and tariffs. Macquarie's David Doyle now projects a 25 basis point hike in September, a shift from his previous forecast of December.
However, a rate hike would put Warsh at odds with President Donald Trump, who has been vocal in his demands for lower interest rates. Trump recently stated on Truth Social that high interest rates put the U.S. at a "very unfair disadvantage" and threatened to stop trading with countries with which the U.S. has a trade deficit if rates do not come down. Vice President JD Vance echoed this sentiment, arguing that lower rates would help Americans afford homes. This political pressure adds a complex dimension to Warsh's decision, making it a "no-win situation" according to Maurice Obstfeld of the Peterson Institute for International Economics.
Despite the political opposition, several financial institutions are aligning with expectations for a hike. Bank of America anticipates a hike next week, warning that a decision not to hike could compromise the Fed's credibility if August core Personal Consumption Expenditures print at 0.24% month-over-month or higher. UBS also expects two hikes this year, in September and December. Chicago Fed President Austan D Goolsbee highlighted the ambiguity of inflation data but noted that monthly inflation readings near 0.3% are "nowhere near target," indicating persistent price pressures, especially in the services sector.
