President Donald Trump didn't waste any time reacting to Friday's surprisingly strong jobs report. In a Truth Social post at 9:41 a.m. ET, he called it a "Great jobs number just announced, breaking all estimates (except mine!) by double and triple." But he didn't stop there. He followed up with a direct threat to the Federal Reserve: "Lower the rate or I'll stop trading with countries with which we have a deficit."
The U.S. economy added 162,000 jobs in August, nearly triple the consensus estimate of 56,000. July's previously reported loss of 23,000 was revised to a gain of 21,000. Food services and local government education accounted for about 62% of the total headline gain.
Trump and the Futures Market Draw Opposite Conclusions
While Trump is demanding lower rates, the market is betting on the opposite. According to CME FedWatch, the probability of a rate hike to 3.75%-4% at the Sept. 16 FOMC meeting jumped to 60.2%, up from 49.4% on Thursday. The probability of a rate cut? A flat 0.0%. The 2-year Treasury yield spiked to 4.4% in response.
The Fed has a dual mandate: maximum employment and price stability. With payrolls running at five times the prior year's 31,000 monthly average, the unemployment rate steady at 4.1%, and the workweek lengthening, the employment side of that mandate isn't sending a distress signal. That frees the central bank to focus on the other side, which remains far from target. Headline PCE inflation ran 3.7% year-over-year in July, and core PCE was 3.3%, both well above the 2% goal.
Trump Puts Pressure on Fed Chair Warsh
Trump's argument seems to conflate creditworthiness with the appropriate monetary-policy interest rate. A strong country means a lower interest rate, he argued, adding that the U.S. should have the lowest rate of any country in the world.
This post is among the most direct public pressure applied to the Federal Reserve since Kevin Warsh became chair. The timing makes it even more striking. In his Jackson Hole speech last week, Warsh emphasized that monetary policy should respond to economic conditions rather than political pressure. He recommitted to the 2% inflation target and said elevated prices should be the central bank's primary focus.
Economists Weigh In: 'A Rate Hike Appears Likely'
Jeffrey Roach, chief economist for LPL Financial, said the report changes the September debate significantly. "Given the strength of the payroll report, a rate hike on September 16 appears increasingly likely," Roach said.
"For the Fed, this data reduces plausible arguments against hiking," said Peter Williams, an economist at 22V Research.
But not everyone is on board. Charlie Ripley, senior investment strategist for Allianz Investment Management, sees a different risk. "The consumer squeeze is already doing the work for the Fed," Ripley said. His concern is that raising rates into an economy already facing pressure could push monetary policy too far.
What Happens Next
Federal Reserve Governor Christopher Waller said Thursday he could support holding rates if inflation keeps improving, and would consider a hike if August prices run hot. That inflation report arrives Sept. 11 at 8:30 a.m. ET, just five days before the FOMC convenes.
Friday's jobs report removed the labor market as an argument against tightening. Next week's inflation report will decide whether the Fed acts on it.
In the meantime, markets are feeling the heat. At last check, the Dow Jones Industrial Average fell 0.68%, and the S&P 500 declined by 0.5%. The tech-heavy Nasdaq Composite dipped 0.02%. On Thursday, the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed higher.
