Traders Expect Fed Rate Hike Despite President Trump's Calls for Lower Rates

President Donald Trump reiterated his request for the Federal Reserve to lower its benchmark interest rate, saying the United States should have “the lowest interest rates in the world.” However, market expectations have shifted, with traders now betting on a rate hike at the Fed’s September 16 meeting.

The Federal Open Market Committee has kept its target range at 3.5%-3.75% since early 2026, after three consecutive cuts late last year. Inflation remains above the Fed’s 2% goal, prompting several officials to signal a possible increase. Fed Governor Michael Barr told a Washington forum on Sept. 1 that while progress had been made in reducing inflation, recent shocks – including tariffs, geopolitical tensions, and rapid AI deployment – have stalled that progress. He said the Fed would act “decisively to raise rates” if inflation does not moderate sufficiently.

Three Fed presidents – Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas – dissented from the July decision to hold rates steady and favored a quarter-point increase. Governors Christopher Waller and Lisa Cook also indicated that a hike may be needed if inflation does not return to target.

“It’s ridiculous because success in growth does not cause inflation. Inflation’s caused for other reasons,” Trump said in the Oval Office on Aug. 31, adding that even a hypothetical 20% growth rate should not trigger a rate rise.

The Fed’s preferred inflation measure showed a 3.7% year-over-year increase in July, and officials await August data on inflation and employment before finalizing their stance. With at least half of the 12 voting members indicating openness to a hike, CME FedWatch reflects a market consensus that the target range could move to 3.75%-4% at the upcoming meeting.