Trump pressures the Federal Reserve to "cut interest rates to save the economy," while the market bets on a 60% probability of a rate hike in September.

On the eve of the Federal Reserve's monetary policy meeting in September (scheduled for September 15-16), U.S. President Donald Trump and senior officials from his administration have been vocal in urging the central bank not to raise interest rates, even calling for a reduction in the benchmark rate. However, market trading data indicates that investors estimate a 60% probability of an interest rate hike at this meeting, creating a stark confrontation between the White House and Wall Street. For ordinary consumers, if the Federal Reserve chooses to raise interest rates, it will further increase borrowing costs for auto loans, credit cards, and mortgages, while American households are already burdened by persistently rising prices. However, tightening monetary policy may help to curb spending and borrowing, thereby cooling the economy and alleviating inflation. Experts point out that this could lessen the price shock on everyday necessities, such as groceries and gasoline, which have been a "pain point" for most American families. So far this year, the Federal Reserve has remained on the sidelines, with the inflation rate still well above the 2% target level. Although Chairman Kevin Warsh has scaled back the so-called "forward guidance" (which signals the central bank's future rate path), the CME's FedWatch tool shows that the latest pricing in the federal funds futures market indicates a 60% possibility of a 25 basis point hike at this meeting. This meeting coincides with the lead-up to the midterm elections in November, and polling shows that voters are generally dissatisfied with high prices and high borrowing costs. Coupled with inflationary pressures from ongoing conflicts with Iran and increased volatility in the bond market, any potential interest rate hike could further tighten household finances. Economic analyst Mark Hamrick noted, "Persistently high prices are particularly hard on middle- and low-income families, many of whom are struggling to afford basic living expenses." President Trump advocates for the U.S. to have the lowest interest rates in the world, arguing that excessively high federal funds rates would put America at a competitive disadvantage against countries with lower rates. Although he did not directly name Warsh as he had done with former Chairman Jerome Powell, he wrote in a social media post on September 4: "The Fed and its great new leaders need to wake upbe a patriot." However, Mark Higgins, senior vice president of Index Fund Advisors, warned that premature rate cuts could undermine efforts to curb inflation. "History shows that the most reliable way to restore price stability is to maintain a sufficiently restrictive monetary policy until inflation is completely tamed. Given the duration of this round of inflation, I believe it is appropriate and in the best interest of the American people to send a clear signal through rate hikes." Economists: Rate Increases Actually Benefit Consumers Once the Federal Reserve raises interest rates, consumers will face higher costs for financial products such as auto loans, credit cards, and mortgages. Short-term consumer credit rates typically tie to the prime rate (which is generally 3 percentage points above the federal funds rate), while long-term rates depend more on inflation expectations and other economic factors. For instance, 15-year and 30-year fixed mortgage rates often follow Treasury yields, and recently, with bond yields skyrocketing, the average rate for 30-year fixed mortgages has risen to 6.89% (according to Mortgage News Daily data, the yield on 10-year Treasuries briefly surpassed 4.8% on Tuesday). Mark Zandi, chief economist at Moody's, pointed out that the president's call for lower rates would backfire, "almost certainly leading to further significant increases in already rising long-term rates." He believes that mortgage rates, which were below 6% before the conflict with Iran, could surge to over 7%, raising borrowing costs for businesses and commercial real estate, and potentially putting pressure on stock markets. Zandi emphasized that if the Federal Reserve cuts rates due to political pressure, bond investors may perceive that the central bank has lost its independence, leading to expectations of higher future inflation and resulting market turmoil. Hamrick contends that ultimately, the most important factor is to maintain the Fed's credibility. If consumers lose confidence in the central bank's ability to restore price stability, they may view high inflation as inevitable, creating a self-reinforcing expectation that affects wage and pricing decisions, making inflation harder to control. Hamrick stated, "Government pressure only underscores the importance of the Fed's autonomy. Preserving the central bank's independence is essential to better serve the American public."