Federal Reserve now expected to raise interest rates by 25 bps after jobs surge

August jobs report beats expectations

The Bureau of Labor Statistics reported that US employers created 162,000 jobs in August. This figure significantly exceeded the forecast of 53,000 jobs anticipated by most economists, signaling continued momentum in the labor market.

Fed Governor Michael Barr noted that he and fellow Federal Reserve officials would support a rate increase unless there is convincing evidence that inflation is decisively slowing. The central bank currently sets its federal funds target rate between 3.50% and 3.75%, while benchmark 30-year mortgage rates are ranging from 6.66% to 6.68%.

After the latest jobs report nearly tripled forecasts, the Fed is inclined to proceed with a 25 basis point rate hike barring any significant downturn in inflation data.

Financial market yields responded to the economic data and global tensions. The yield on the 10-year Treasury note climbed to its highest level since January 2025, driven in part by renewed concerns about geopolitical risks related to the US-Iran conflict.

Trump presses Fed to cut rates

US President Donald Trump renewed his demand for lower interest rates, directly challenging the Federal Reserve’s projected hike. In public remarks and a post on Truth Social, Trump highlighted the robust jobs growth, while insisting that the US now has stronger credit and should therefore benefit from reduced interest rates.

“Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago! A STRONG COUNTRY MEANS A LOWER INTEREST RATE – IT’S A BETTER CREDIT.”

Trump also threatened to halt trade with nations running a trade surplus against the US if the Federal Reserve does not act. He argued that by leveraging the country’s economic strength, rates should decline and global trading partners should lose privileged economic status if deficits are not addressed.

Mini dictionary: Federal Reserve, the central bank of the United States, is responsible for setting monetary policy including interest rates and regulating the country’s money supply.

This approach echoes Trump’s earlier critiques of the Fed’s rate decisions while Jerome Powell served as chair. The central bank is now led by Kevin Warsh, a former Fed Governor with support from Trump, potentially adding a new dynamic to the central bank’s decision-making ahead of its next gathering.

Inflation data to guide Fed’s next move

The Federal Reserve’s commitment to raising rates hinges on new inflation data expected next week. Fed Chair Kevin Warsh recently addressed the Jackson Hole symposium, stating policymakers would have more work to do if there is insufficient evidence that inflation is returning to the official 2% target. This has been his clearest indication yet that further rate hikes remain possible if inflationary pressures persist.

Analysts believe the latest jobs and wage data will add pressure on the Fed as it calibrates its approach, but the upcoming inflation report could be decisive for the final policy decision.