Key Takeaways: Trump renewed his push for Fed rate cuts Wednesday, praising Warsh as September hike odds collapsed to 33 percent.
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Trump urges Fed rate cuts as hike odds drop to 33%
President Donald Trump renewed his push for Federal Reserve rate cuts Wednesday, saying the U.S. should be paying far less on its debt while praising Chairman Kevin Warsh as doing a "great job." The fed funds rate stands at 3.50-3.75 percent.
"We should be paying much less," Trump said, according to remarks reported Wednesday. The president's comments come as CME FedWatch data showed the probability of a September rate hike falling to 33 percent from roughly 82 percent in late July, while Kalshi's prediction market puts a 73 percent chance on a hold.
The shift in market expectations follows two Bureau of Labor Statistics reports. July nonfarm payrolls fell by 23,000 against forecasts for an 83,000 gain, with May and June revised down by a combined 103,000. July CPI rose 3.4 percent year over year, easing from 3.5 percent in June. Minutes from the Fed's July 28-29 meeting showed "several" policymakers ready to raise rates and "many" favoring a hike if inflation failed to decline toward the 2 percent target.
The collision between Trump's rate-cut push and the Fed's inflation fight sets up a defining test at the September FOMC meeting. Rate futures price better-than-even odds of a hike at the October 27-28 meeting if September passes without action. Treasury Secretary Scott Bessent's move to double buybacks of long-dated debt pulled 30-year yields down 10 basis points to 5.18 percent Wednesday, easing pressure on government borrowing costs ahead of November congressional elections.
The president's remarks mark the latest salvo in a running battle over monetary policy that has defined his second term. Trump appointed Warsh in May expecting rate cuts, but the central bank has instead held rates steady while debating whether inflation requires another hike. The July meeting produced three dissents in favor of a quarter-point increase, and the minutes showed a committee split between those ready to tighten and those waiting for more data.
Warsh, in his second meeting as chair, has already begun reshaping the institution. He asked the committee whether the Fed should reduce its meeting schedule from eight to six sessions per year, allowing two full months of data to accumulate between decisions. No decision was made, and the 2026 schedule remains unchanged. The minutes also showed participants viewing an upcoming task force review of balance-sheet management as an "opportunity for a comprehensive discussion," though "many" reaffirmed that the federal funds rate should remain the primary policy tool.
Rate differentials widen as global peers ease
Trump's complaint that other countries maintain lower policy rates reflects a widening gap between the U.S. and its major trading partners. While the Fed holds at 3.50-3.75 percent, the president has pointed to peers with lower benchmark rates, leaving the dollar's yield advantage intact but raising the cost of U.S. government debt. The 10-year Treasury yield, which Bessent has cited as a benchmark of administration success, fell 5 basis points to 4.66 percent Wednesday after the buyback announcement.
The Treasury's decision to at least double buybacks of bonds maturing in 10 to 30 years drew comparisons to the Fed's "Operation Twist" of 2011, when the central bank sold short-term securities to buy long-dated debt and flatten the yield curve. Deutsche Bank strategist George Saravelos called the approach a "soft form of financial repression." Bessent has already shifted more of the nearly $2 trillion annual deficit into short-dated bills, and the buyback expansion extends that strategy. The department's support for the yen was also seen as a way to keep Japanese authorities from dumping Treasuries, which could have worsened the bond rout.
What happens next
The September FOMC meeting will test whether the recent data is enough to keep the Fed on hold. The July jobs report showed a monthly decline in payrolls, and the downward revisions to May and June suggest the labor market cooled faster than initially reported. If inflation continues to ease toward 3 percent, the case for a hike weakens further. If price pressures reaccelerate, the committee's "many" members who favor tightening could carry the day.
The weak jobs report complicates the Fed's dual mandate, which requires balancing maximum employment against price stability. With payrolls contracting and inflation easing, the case for maintaining the current rate becomes stronger, even as the committee's hawks argue that 3.4 percent inflation remains well above target.
For markets, the stakes are clear. A September hold would likely extend the equity rally that followed the Treasury buyback announcement, with rate-sensitive growth stocks such as CoreWeave and Nebius Group among the biggest beneficiaries. A hike would reverse that trade and push yields higher, complicating the administration's borrowing plans just weeks before congressional elections.
This article is for informational purposes only and does not constitute investment advice.
[1] Trump bemoans Fed interest rate policy, says U.S. should be paying much less[2] Bessent moves to curb Treasury yields, putting new pressure on Warsh's Fed[3] Fed policymakers' inflation concerns increased at July meeting, minutes show[4] Fed Chair Kevin Warsh's Job Just Got Much Easier. Here's What's Likely Next for...[5] Treasury Bond Buybacks Evoke Memory of Fed’s ‘Operation Twist’
