Trump Pressures for Rate Cuts, but Wall Street Warns Fed Could Surprise with a Hike

With the Federal Open Market Committee (FOMC) set to convene for two days starting July 28, Federal Reserve (Fed) Chair Kevin Warsh is facing heightened concerns. U.S. President Donald Trump on this day pressured the Fed to lower its benchmark interest rate. However, inflation remains above the Fed’s target, and instability in oil prices driven by the Middle East continues. Some analysts are arguing that, to emphasize the Fed’s independence and to preemptively control inflationary risks, the Fed should consider raising interest rates.

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According to the CME FedWatch tool of the Chicago Mercantile Exchange (CME) on July 27 (local time), the market is currently pricing in a 36.3% probability that the Fed will raise rates by 0.25 percentage points at this FOMC meeting. This is an increase of 20.3 percentage points from 16.0% just a week ago. The probability of keeping rates unchanged stands at 63.7%. The current U.S. benchmark interest rate ranges from 3.50% to 3.75%. The Fed has left rates unchanged for four consecutive meetings this year.

While it is likely that the FOMC will keep rates on hold at this month’s meeting, Citadel Securities presented a different analysis on this day. Citadel Securities argued that a rate hike would reinforce Chair Warsh’s determination to restore price stability. The report explained that an unexpected rate increase would not only enhance the Fed’s credibility in controlling inflation, but also influence corporate price-setting and workers’ wage demands before inflation becomes entrenched.

Frank Platt, Head of Macro Strategy at Citadel Securities, stated, “The market may once again be underestimating the degree of the Fed’s hawkish pivot.” He added that a rate hike at this meeting would “substantiate Chair Warsh’s comment about ending the era of forward guidance,” and would also serve to underscore the Fed’s independence from President Trump.

Neil Dutta, Chief Economist at Renaissance Macro Research, said in a recent report that it is “clear” another rate hike will occur within the coming months. He pointed out that Chair Warsh strongly emphasized his commitment to price stability at his first meeting last month, and that the conditions causing inflationary pressures have yet to dissipate. “There are times when the Fed has to go against the majority market outlook, and I believe now may be one of those times,” Dutta said, suggesting a rate hike could take place at this meeting.

The current trends in inflation and oil prices are also being cited as reasons in support of a rate hike. The Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE) Price Index, rose 4.1% year-on-year in May. The core PCE price index, which excludes food and energy, rose 3.4%, remaining above the Fed’s stated 2% target. The Consumer Price Index (CPI) for June also climbed 3.5% year-on-year. Meanwhile, although global oil prices have fallen recently in response to a temporary pause in U.S. airstrikes on Iran, supply concerns from the Middle East have not been resolved.

Contrary to these projections, President Trump continues to push for rate cuts. While aboard Air Force One en route to Michigan, President Trump insisted, “Rates need to go down,” claiming that “the U.S. GDP growth rate could reach 8%, 9%, 10%, even 12%, and that is entirely appropriate.” He added, “There are countries with lower interest rates than the U.S., but without us, they wouldn’t even exist—as they take capital from America while enjoying lower rates, which is not acceptable.” He continued, “America should have the lowest interest rates in the world,” emphasizing that “we must return to having the world’s lowest rates, just like 30 years ago.”

This content was produced with the assistance of AI translation services.