The market's current pricing indicates an 86% probability of a rate hike in September, while Federal Reserve Chairman Waller is facing completely opposite pressure for increasing rates.

Written by: Long Yue, Wall Street Insights

As inflation exceeds expectations and the market bets on a rate hike, Trump continues to pressure the Federal Reserve, demanding lower borrowing costs.

On Sunday, September 13, during the Irish Open in Ireland, Trump told reporters: "America is so strong, we should be paying the lowest rates in the world, no matter how they calculate their formula."

This statement came at a sensitive time: just two days earlier, the U.S. August CPI data was released, showing an increase beyond expectations. According to Bloomberg, the market immediately raised its expectations for a Federal Reserve rate hike— with the probability of a September hike rising to 86% and two hikes expected within the year.

When asked if he expected the Federal Reserve to raise rates at next week's meeting, Trump replied: "I don't know."

Trump's pressure goes beyond words. At the beginning of September, Trump hinted that if the Federal Reserve did not cut rates, he would consider cutting trade ties with economies that have trade deficits. On Sunday, when reporters pressed him on whether he would really carry out this threat, he clearly stated: "Yes, I will do that with certain countries." "This will be gradually implemented over a period of time."

Trump also stated the same day: "I understand the formula better than anyone. With the best credit in the world, we're making other countries rich. We could turn off that switch in two minutes."

Waller Under Pressure, Rate Hike Expectations Rise

Federal Reserve Chairman Waller is currently facing increasingly strong pressure to raise rates.

The August CPI data exceeded expectations and was widely interpreted by the market as a sign to push for the first rate hike in three years by the Federal Reserve. Since Waller took over as Fed Chairman, he has not been publicly criticized by Trump as frequently as his predecessor Powell, but Trump has recently shown clear dissatisfaction with the Federal Reserve's policy stance.

Trump has repeatedly criticized Powell for not being more aggressive in lowering borrowing costs. Regarding Waller, he hinted that the latter may be constrained by what he calls a "very politicized" Federal Reserve Board.

Multiple Pressures Confront the Federal Reserve

The macro environment currently facing the Federal Reserve is quite complex.

The U.S.-Iran war has entered its seventh month, with energy prices continuing to rise. At the same time, Trump's tariff policy is continuously driving inflationary pressures, making it even more challenging for the Federal Reserve to achieve its inflation targets.

On the political front, voters have given Trump low scores for his handling of war and economic issues. Rising living costs—covering energy, housing, healthcare, and groceries—have become one of the top concerns for voters ahead of the November midterm elections. The Republican control of Congress is facing threats.