On September 14 local time, U.S. President Trump once again publicly pressured the Federal Reserve, predicting that it would implement a "substantial rate cut." Previous market forecasts indicated that the Fed's benchmark interest rate would be lowered from the current 4.5% range to 4.25%. Trump's remarks are not unfounded, but are based on recent economic data showing signs of weakness in the labor market, as well as his consistent criticism of Federal Reserve Chairman Jerome Powell.
Economic Signals Under Political Pressure
In a media interview, Trump bluntly stated: "I think there will be a substantial rate cut." If this comes true, it would be the Fed's first rate cut since last December. He emphasized that the Fed should act immediately to address the cooling labor market and the recent decline in the Producer Price Index (PPI). This statement quickly fermented on social media, with several financial observers reposting and commenting, calling it "public pressure on Powell." This is not the first time Trump has intervened in Fed affairs. Since the beginning of his second term, he has repeatedly urged the Fed to accelerate rate cuts, even considering replacing Powell. The timing of this statement is particularly sensitive, coming on the eve of the FOMC meeting. The market had generally expected a moderate 25 basis point rate cut, but Trump's "bold" remarks suggest he expects a more aggressive adjustment of 50 basis points or more.
The Consumer Price Index (CPI) released on the evening of September 11 showed that the U.S. inflation rate rose to 2.9%, with core inflation stable at 3.1%. Although this is higher than the Fed's 2% target, the monthly increase was only 0.4%, slightly above expectations. More importantly, the August employment report showed that nonfarm employment growth slowed and the unemployment rate rose slightly to 4.2%, with clear signs of a "cooling" labor market. Trump attributed this to the restraining effect of high interest rates and took the opportunity to reiterate that his tariff policy would not lead to runaway inflation. However, critics point out that Trump's intervention could exacerbate the Fed's independence crisis.
Fed Rate Decision: Forecast from 4.5% to 4.25%
At 2 a.m. on September 18 (GMT+8), the Fed will announce its rate decision. The benchmark rate has remained in the 4.25%-4.5% range for more than nine months. Market consensus points to a 25 basis point rate cut, lowering the rate to 4%-4.25%. CME Group's FedWatch tool shows that 94.2% of traders expect this magnitude. This forecast is based on multiple factors: a weakening labor market, stabilizing inflationary pressures, and, against the backdrop of a "36-hour rate frenzy" among global central banks, the U.S. needs to follow suit to avoid an excessively strong dollar.
The Fed's caution stems from dual risks: on one hand, Trump's tariff policy could push up import prices and trigger a new round of inflation. On the other hand, labor market data shows that new jobs added in August were below expectations and hiring has slowed, making the Fed worry that the "maximum employment" goal is in jeopardy. Fed Governor Christopher Waller recently stated that if August data deteriorates further, he supports a "more aggressive rate cut." However, most economists expect the Fed to "proceed cautiously," with two more 25 basis point cuts possible in the remaining meetings of 2025 after the September cut. A Bloomberg survey shows that 40% of economists surveyed predict three rate cuts before the end of the year, but the median is two.
Powell's speech at the Jackson Hole meeting further reinforced this expectation. On August 22, he said, "The balance of economic risks has begun to shift," hinting that the September meeting may adjust its policy stance. Although Powell avoided directly responding to Trump, he emphasized that uncertainties (such as tariffs) could lead to a contraction in business investment. After September 15, the Financial Times reported that the Fed would be "initially cautious," cutting rates to 4%-4.25% in September and remaining vigilant to address the dual risks of inflation and employment. If the rate cut exceeds expectations (such as 50 basis points), the market may interpret it as a signal of economic recession; conversely, maintaining the status quo will intensify friction between Trump and the Fed.
Chain Reactions from Stock Market to Global Trade
The Fed cutting rates to 4.25% will directly stimulate lower borrowing costs, benefiting real estate, consumption, and corporate investment. In the short term, S&P 500 index futures rose 0.5% after Trump's remarks, with tech stocks and cryptocurrencies leading the gains. However, this policy is not a panacea. The New York Times analysis points out that high interest rates have already suppressed economic growth, and if rate cuts are too slow, the unemployment rate could rise further to above 5%. On the other hand, inflation risks remain: if Trump's tariffs are implemented, consumer goods prices will rise and core CPI could rebound to 3.5%.
From a global perspective, U.S. rate cuts will weaken the dollar, and capital is expected to flow into the crypto market. Risk assets such as bitcoin and ethereum may see short-term rallies or even hit new highs. However, it should be noted that if the Fed statement still emphasizes "inflationary pressures," the market may stage a "buy the rumor, sell the fact" scenario, with a rapid pullback after a short-term rise.
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