President Donald Trump has threatened to halt trade with countries running US deficits unless the Federal Reserve lowers interest rates, escalating pressure on Chair Kevin Warsh days before a meeting where markets instead price a rate hike. The threat, posted on social media, was the first time Trump has tied tariff action directly to monetary policy. The National reported the Fed has now entered its quiet period, barring officials from public remarks on policy until September 17.
The meeting concludes September 16. Roughly 60 percent of traders expect a quarter-point increase that would lift the federal funds rate to between 3.75 and 4 percent, according to CME Group data. The odds moved up after August payrolls showed 162,000 jobs added with unemployment unchanged at 4.1 percent, and again after August CPI rose 0.4 percent on the month, up from 0.1 percent in July. Annual inflation sits at 3.4 percent, well above the Fed’s 2 percent target.
Warsh, nominated by Trump in January and sworn in on May 22, has spent his first months as chair moving in the opposite direction from the president’s wishes. At Jackson Hole he said the Fed might be forced to act if inflation does not moderate. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job,” he said. He also called the 2 percent target “firm and fixed.”
The pressure campaign
The White House case for cuts leans on the labor market. Vice President JD Vance and Treasury Secretary Scott Bessent have both said the Fed should not raise rates. Trump has called the current benchmark rate “ridiculous” and argues lower borrowing costs would support the economy ahead of November’s midterms.
“Lower the rate or I’ll stop trading with countries with which we have a deficit,” Trump wrote in the post reported Thursday.
The tariff threat marks an escalation in method if not in message. Trump spent much of Jerome Powell’s tenure attacking the chair personally and publicly. With Warsh, his own pick, the pressure has so far stayed at the level of policy demands. Threatening trade action against entire countries as leverage over the central bank goes further than anything aimed at Powell.
Warsh’s problem is that the data cuts against the White House. PCE inflation over the past six months ran at an annualized 4.1 percent. Producer prices came in faster than expected this week. Oil near $110 a barrel after Middle East fighting disrupted shipping through the Strait of Hormuz adds an energy shock on top of already sticky core inflation. Analysts at JPMorgan expect eight of nine developed-market central banks to hike between now and year-end, with Canada the exception.
What a hold would cost
Bank of America expects a hike next week and a second in the first quarter of 2027. Its US macro team wrote that if core PCE prints at 0.24 percent or higher, hike odds would go above 50 percent going into the meeting, and that a decision not to hike could raise questions about the Fed’s credibility, showing up in higher long-end yields.
That matters for Treasury Secretary Bessent, who has been running buybacks to steady the long end. The 10-year yield brushed 5 percent this week before easing, and the 30-year hit its highest level since 2007. A credibility-driven selloff would undo that work. UBS expects two hikes this year, in September and December, though chief investment officer Mark Haefele framed the context as more important than the move. “A Fed responding to U.S. economic strength is very different from a Fed responding to inflation problems,” he wrote.
Governor Christopher Waller left the door open to the other outcome, saying he would consider a hike only if inflation came in hot, referring to the CPI report that was the last major print before the meeting. That CPI report matched forecasts at 0.4 percent for the month, and stocks rallied Friday on the relief, with the Dow gaining about 500 points to snap a four-day slide.
The inflation picture behind the Fed’s dilemma is mostly an energy story layered onto an already firm base. Brent crude climbed to almost $110 a barrel this week, its highest since May, after US forces struck Iranian oil tankers and Houthi forces attacked Saudi territory. Energy costs feed into gasoline, diesel and freight with a lag, which is why forecasters expect the September and October CPI reports to stay elevated even if this month’s print was unremarkable. Warsh flagged exactly this mechanism at Jackson Hole, warning that inflation expectations can look anchored “before suddenly not.”
The pressure is not only American. Asian stocks and bonds fell after the US inflation data and the oil surge, and the European Central Bank has already raised rates once this year to head off the energy shock. Sweden, Australia and Norway are all in tightening mode. If the Fed hikes on September 16, it joins a global group rather than acting alone, which changes how markets will read the move and how much blame lands on any single central bank.
The political calendar sharpens everything. A hike six weeks before an election, ordered by a chair the president appointed, against the president’s explicit objection, has no recent precedent. Warsh has avoided signaling the decision directly, and the quiet period now prevents him from doing so. Adam Posen of the Peterson Institute told the AP that failing to hike after such a strong signal would leave markets asking what changed. Whatever the committee decides, the split between the White House and the Fed is now public, priced, and set to resolve on September 16.