Strong jobs report fuels Fed rate hike prospects as Trump escalates rate cut pressure

A stronger-than-expected U.S. jobs report has put a September interest-rate hike back firmly on the table, leaving Federal Reserve Chair Kevin Warsh facing a difficult choice as President Donald Trump intensifies his demands for lower borrowing costs, Reuters reported.

U.S. employers added 162,000 jobs in August, nearly three times what economists had expected, while the labor force participation rate rose to 61.6%. More people moved from the sidelines directly into jobs, helping keep the unemployment rate at 4.1% even as the pool of available workers expanded.

The report strengthens the argument for the Fed to raise rates at its Sept. 15-16 meeting, particularly after Warsh last week said he needed confidence that inflation was moving back toward the central bank's 2% target "clearly and at sufficient speed. Otherwise, we have work to do."


But the stronger labor market data arrives as Trump steps up pressure on the central bank.

"The Fed Board, with its great new leader, must ​get smart - BE PATRIOTS for a change," Trump said in a Truth Social post Friday after the jobs data were released.

He also renewed his criticism of high interest rates, saying: "High interest rates put the U.S.A. ​at a very unfair disadvantage, and I won't allow that to happen!"

Trump then tied his demand for lower rates to U.S. trade policy, threatening to halt trade with countries running a deficit with the United States.

"We should have ​the LOWEST RATE of any country in the World ... LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," Trump said.

The threat adds another layer of uncertainty for the Fed, which is already navigating inflation that has remained above its 2% target for more than five years. Trump's tariffs, along with higher energy prices linked to the escalation in the U.S.-Iran conflict and strong investment in artificial intelligence, have added to price pressures and pushed up longer-term Treasury yields.

For now, however, the jobs report itself does not settle the Fed's decision.

Wage growth was 3.1% in August, a pace broadly consistent with the Fed's inflation goal, while the increase in labor-force participation suggests the steady unemployment rate was driven by more people working or looking for work rather than a deterioration in labor-market conditions.

"The upshot of today's numbers is that the September FOMC meeting remains finely balanced," Pantheon Macro economists wrote. "FOMC members have uniformly signaled that inflation data will determine their next ​policy steps."

That makes next week's consumer price index and producer price index reports crucial. Fed Governor Christopher Waller told Reuters NEXT on Thursday that he would support keeping rates in the 3.50%-3.75% range if inflation data continued to moderate.

Markets nevertheless moved toward pricing a hike after Friday's report, with interest-rate futures implying about a 62% chance of an increase this month, up from roughly 55% before the data.

"While Fed officials have communicated that they are squarely focused on the inflation readings, today's strong employment report also provides additional support for rate hikes this year," Nationwide Chief Economist Kathy Bostjancic wrote.

"We now see two, 25 basis-point rate hikes by year-end, lifting the fed funds rate to 4-4.25%."

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)