Trump Told the Fed to Cut Rates. It Raised Them

• The August jobs report added 162,000 positions (triple the 56,000 consensus estimate), but over 100,000 came from just food services and local government education sectors
• Markets interpreted the strong employment data as justification for rate hikes rather than cuts, with the 10-year Treasury yield climbing above 4.81% and futures pricing in a 65% probability of a September rate increase
• Fed Chair Kevin Warsh prioritized inflation control over rate cuts, with headline PCE inflation at 3.4% and core PCE at 3.0% in August, while the trade deficit widened to $105.6 billion despite being 19.9% smaller year-over-year

Market Summary: Fed Defies Trump, Raises Rates Despite Presidential Pressure

Key Development

On September 4, President Trump publicly demanded the Federal Reserve cut interest rates, threatening to halt trade with deficit countries. However, on September 16—just 12 days later—the Federal Open Market Committee unanimously voted to raise the federal funds rate by 25 basis points to 3.75%-4.00%, defying presidential pressure.

Economic Data

The August jobs report significantly exceeded expectations:

• 162,000 jobs added vs. 56,000 consensus forecast
• Unemployment held at 4.1%
• However, over 100,000 jobs came from just two sectors: food services (59,200) and local government education (41,900)

Inflation remained elevated above the Fed's 2% target:

• Headline PCE: 3.4%
• Core PCE: 3.0%

The trade deficit widened to $105.6 billion in August from $92.8 billion in July, despite being 19.9% smaller year-over-year.

Market Reaction

Major indices closed lower following Trump's demands:

• S&P 500: -0.77% to 7,775.50
• Dow Jones: -1.17% to 50,999.00
• Nasdaq: -0.80% to 31,038.20
• Russell 2000: -1.44% to 2,793.55

The 10-year Treasury yield climbed above 4.81%, and futures markets priced in a 65% probability of a September rate hike.

Implications

Fed Chair Kevin Warsh, Trump's appointee, prioritized inflation control over presidential preferences, demonstrating central bank independence. September's weaker jobs report (29,000 added) underscored the Fed's focus on trends rather than single data points, validating their hawkish stance despite political pressure.