Donald Trump’s demand that the Federal Reserve slash borrowing costs to the lowest of any country in the world has collided head-on with reality: the Trump Fed interest rate hike he publicly opposed was delivered anyway, as a robust August jobs report gave policymakers the cover they needed to act. The decision, confirmed on 16 September, marks the first increase in US borrowing costs since July 2023.
The Fed raised its benchmark rate by a quarter of a percentage point, bringing the overnight funds rate to a target range of 3.75% to 4%, according to The New York Times. The move was backed unanimously by all 12 members of the Federal Open Market Committee, leaving no dissent on the board despite the president’s very public campaign against tighter monetary policy.
Jobs figures that made a hike hard to resist
The trigger was an August labour market report that far outstripped expectations. The US economy added 162,000 jobs in the month, nearly three times the 56,000 analysts had forecast, driven by a surge in hospitality and education hiring. Weaker figures from earlier in the summer were also revised upward by the US Bureau of Labor Statistics: July, previously thought to have seen a loss of 23,000 jobs, was recalculated to show 44,000 created. The unemployment rate held steady at 4.1%, with seven million people out of work.
Wages kept pace. Average hourly earnings for all employees reached $37.75, up 3.1% over the period. That combination (strong job creation, upward revisions and rising pay) made a compelling case for action, even before the Fed’s inflation problem is factored in.
Inflation remains above the central bank’s 2% annual target, with prices 3.4% higher than a year earlier according to the latest data. Energy costs have sharpened that pressure: US diesel prices hit an all-time high of $5.85 a gallon on Friday, up from $3.71 a year ago, heaping further strain on households and businesses alike.
Trump Fed interest rate hike row plays out in public
Trump did not hold back. In a post on social media, he insisted the US should have the ‘LOWEST RATE of any country in the World’ and accused the Fed of putting America at ‘a very unfair disadvantage’. He told the board’s leadership to ‘BE PATRIOTS for a change’, adding: ‘High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!’
When stock markets fell on Friday in response to the stronger-than-expected jobs data raising rate-hike expectations, Trump called the reaction ‘crazy’. He argued that good economic numbers should push markets higher, not lower, and blamed what he described as a ‘False Reality’ about inflation fears distorting investor behaviour.
Kevin Warsh, chairman of the US central bank, had already prepared the ground. Last week, he signalled that rates could be raised if policymakers were not confident price rises were easing for Americans. The unanimous vote on 16 September confirmed that confidence had not yet arrived.
Markets and economists had seen it coming
City analysts were unsurprised by the outcome. Stephen Brown, chief North America economist at Capital Economics, said: ‘Even the most committed dove would struggle to find anything in the August employment report to justify keeping interest rates unchanged.’ He added that the strength of the jobs market meant inflation figures due the following week needed to be only moderately above target to fuel September hike expectations further, a threshold that was subsequently cleared.
Neil Birrell, chief investment officer of investment firm Premier Miton, was equally direct: ‘A hike in rates just became a bit more likely.’ That assessment proved correct. In the run-up to the decision, almost 60% of traders were betting on a September increase, according to CME Group‘s FedWatch data.
Rates had been held in the 3.5% to 3.75% range in July for the fifth consecutive time, as policymakers monitored whether inflation was genuinely cooling. The conflict between the US and Iran, which has pushed global oil prices sharply higher, complicated that picture and kept pressure on prices across the economy. With the August data resolving the uncertainty in one direction, the committee moved.
The quarter-point rise, supported by every member of the committee, signals that the Fed under Warsh is prepared to act regardless of presidential pressure. Whether a further move follows will depend in part on the inflation and employment data that lands before the next scheduled decision.
