Fed's 60% Rate Hike Odds Mock Trump's Cut Demands

Markets are pricing nearly 60 percent odds of a Federal Reserve rate hike in September, even as the Trump administration stages what can only be described as a coordinated pressure campaign to prevent exactly that outcome. This is not new terrain. What is new is the nakedness of it all—and the completeness with which markets are ignoring the political noise.

The CME FedWatch probability moved to 60.4 percent following August employment data that came in substantially above consensus, with employers adding 162,000 jobs against economist expectations of roughly 55,000. Unemployment held steady at 4.1 percent. The jobs report did what jobs reports do when they're surprisingly strong: it made rate cuts less likely. The market responded accordingly. In the week preceding the September 17-18 FOMC meeting, the Trump administration responded by launching a broad public campaign for easier policy, with Vice President JD Vance, Treasury Secretary Scott Bessent, senior economic counselor Peter Navarro, and President Trump himself all pressing the central bank to avoid a hike.

Trump's public interventions on monetary policy have grown increasingly explicit. The underlying message is consistent: inflation concerns are secondary to growth and asset prices. This marks an escalation from his first term, when similar pressure campaigns achieved little beyond generating memorable tweets. The tone has sharpened. The administration is essentially arguing that the Fed should subordinate its inflation mandate to political preferences about the trajectory of the economy heading into an election cycle.

Fed Chair Lael Brainard has been signaling that inflation control takes precedence over rate cuts. Brainard has expressed concern that inflation remains above the Fed's 2 percent target and is broad across consumer categories. She is, in other words, doing the job she was appointed to do, which puts her on a direct collision course with the White House that appointed her. This is the clearest possible illustration that monetary independence, whatever its vulnerabilities, still functions as a structural reality rather than a political courtesy.

There is a reason markets are pricing in rate hikes at 60 percent and not, say, 20 percent. It is because markets operate under the assumption that the Federal Reserve will make decisions based on economic data rather than presidential preferences. That assumption has held through multiple administrations and multiple crises. It held during the 2016-2020 Trump administration, when similar pressure campaigns achieved little beyond generating memorable tweets. It is holding now, though with palpable tension.

There is also reason to note what the Trump administration's rhetoric actually reveals about the scale of economic distortion at work. The U.S. goods trade deficit reached $1.24 trillion in 2023, according to U.S. Census Bureau data. The administration's implicit threat—that it would weaponize trade policy in response to rate hikes—amounts to threatening economic self-harm in order to pressure the Fed into economic self-harm of a different sort. Supply chain disruption from trade restrictions would dwarf any damage from a quarter-point rate move. This is not a serious negotiating position. It is theater performed for an audience that believes central banks operate by consensus rather than by law.

The September meeting presents Brainard's first major test as Fed chair while under intense political pressure to avoid the very hike that markets expect. The outcome will tell us something important about whether this administration believes in Federal Reserve independence or merely in Federal Reserve cooperation. The difference between those two things matters more than any single rate decision.

For now, markets are betting on independence. We will know within days whether that bet was well-placed or whether we are about to witness something genuinely unusual: a Fed chair capitulating to a president's public demands on the eve of a major policy decision. If Brainard cuts rates on September 18th, the message will be clear. If she hikes, the message will be clearer still.