Investors are increasingly preparing for the Federal Reserve to raise interest rates in September, putting the central bank on a potential collision course with a White House publicly demanding cheaper borrowing.
Interest rate markets now put the probability of a 25-basis-point increase at 58.4%, according to CME FedWatch data cited by Fortune. Such a move would lift the federal funds target range to 3.75% to 4%. The shift follows stronger-than-expected employment figures and comes as inflation remains above the Fed’s target, strengthening the case for a Fed rate hike even as President Donald Trump calls for rates to fall.
August Jobs Data Changes the September Calculation
The US economy added 162,000 jobs in August, while unemployment held at 4.1%, according to Bureau of Labor Statistics figures released on Friday. The numbers provided fresh evidence of resilience in the labour market ahead of the Federal Open Market Committee meeting ending Sept. 16.
Inflation presents the other challenge for Federal Reserve chair Kevin Warsh and his colleagues. The latest Consumer Price Index report showed the all-items index rising 3.4% over the previous 12 months, remaining above the Fed’s 2% inflation objective. A new CPI reading is scheduled for Friday.
That combination of employment strength and elevated inflation has prompted economists to bring forward expectations for tighter monetary policy.
Macquarie economist David Doyle said the firm had shifted its baseline forecast for the first 25-basis-point increase from December to September. Macquarie continues to expect another 25-basis-point rise in the first quarter of 2027.
Bank of America is also expecting an increase at the September meeting. Its US macro team said a sufficiently strong August core Personal Consumption Expenditures reading could push market expectations for a hike above 50% heading into the decision. In that situation, the bank argued, holding rates steady could raise concerns about the Fed’s credibility and put upward pressure on longer-term yields.
UBS expects two increases during 2026, one in September and another in December.
Trump Presses Warsh to Take Rates in the Opposite Direction
The market’s changing expectations create an unusually difficult backdrop for Warsh, who was sworn in as Federal Reserve chair in May after being selected by Trump.
The president has continued his campaign for lower rates despite the inflation and employment data confronting policymakers. In a Friday post on Truth Social, Trump called on the central bank to reduce borrowing costs, arguing that the strength of US credit justified lower rates.
Trump also linked monetary policy to his trade agenda, threatening action against countries with which the US runs trade deficits if borrowing costs do not decline. He said high interest rates leave the country at an unfair competitive disadvantage.
Vice President JD Vance has reinforced the administration’s position, connecting lower rates to housing affordability. Vance said last week that the administration was pursuing measures to keep rates down but wanted assistance from the Federal Reserve.
The disagreement matters beyond the September decision. A central bank facing inflation above target must convince markets that its decisions are being driven by economic conditions, while the administration is openly arguing for the opposite policy outcome. That makes the reasoning accompanying any decision especially important. A hike supported by evidence of economic strength could be interpreted differently by investors from an increase driven primarily by concern that inflation is becoming harder to contain.
UBS chief investment officer Mark Haefele made a similar distinction, arguing that the economic circumstances surrounding higher rates matter more for portfolios than the rate move by itself.
Bond Markets Could Deliver the Bigger Signal
Attention will now turn to Friday’s inflation report and then the FOMC decision on Sept. 16. Both could alter expectations quickly if incoming data challenge the current case for higher rates.
Longer-term Treasury yields will also be closely watched. A rise in yields after the Fed decision could work against efforts by Treasury Secretary Scott Bessent to influence market conditions through Treasury buybacks, adding another complication for the administration.
For investors, the September meeting is therefore about more than whether the Fed moves rates by 25 basis points. The statement, economic rationale and market reaction will help determine whether investors see a Fed responding to durable economic strength, persistent inflation pressure, or some combination of the two.
The political response could prove equally important. If Warsh’s Fed raises rates while the White House continues demanding cuts, the gap between monetary policy and the administration’s preferred direction will become even more visible.
