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Employment data is strong, the Federal Reserve now expects to raise interest rates by 25 basis point

2026-09-05 03:45:45
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The Federal Reserve expects to raise interest rates by 25 basis points later this month

Against the backdrop of U.S. August employment data far exceeding expectations, the market generally predicts that the Federal Reserve will raise its key interest rate by 25 basis points later this month. Currently, policymakers, investors and analysts are closely watching key inflation data due next week, which could influence upcoming monetary policy decisions.

August employment report performed strongly

The U.S. Bureau of Labor Statistics reported that U.S. employers added 162,000 new jobs in August. This figure significantly exceeded the forecast of 53,000 jobs expected by most economists, indicating that the labor market continues to grow.

Federal Reserve Governor Michael Barr said he and fellow Fed officials would support raising interest rates unless there was convincing evidence that inflation was slowing decisively. Currently, the central bank sets a target federal funds rate range of 3.50% to 3.75%, while the benchmark 30-year mortgage rate fluctuates between 6.66% and 6.68%.

After the latest jobs report nearly tripled forecasts, the Fed is leaning towards a 25 basis point rate hike unless there is a significant decline in inflation data. Yields in financial markets have responded to economic data and global tensions. The yield on the 10-year Treasury note climbed to its highest level since January 2025 amid heightened concerns about geopolitical risks related to the U.S. -Iran conflict.

Indicators Previous period/expectations Latest data New jobs in the United States (August) 53,000 (expected) 162,000 (actual) Federal funds rate 3.50%-3.75% 3.50%-3.75%(before interest rate increase) 30-Year Mortgage Rate – 6.66%-6.68%

Trump presses the Federal Reserve to cut interest rates

U.S. President Donald Trump has once again called for a reduction in interest rates, directly challenging the Federal Reserve's expected interest rate hike plan. In public remarks and postings on the Truth Social platform, he highlighted strong job growth, while insisting that the United States now has a stronger credit position and should therefore benefit from lower interest rates.

"Lower interest rates because the credit profile of the United States is much stronger than it was not so long ago! A strong country means lower interest rates-it's better credit."

Trump also threatened to stop trading with countries that have trade surpluses with the United States if the Fed did not act. He believes that by leveraging the country's economic strength, interest rates should fall and that if the deficit problem is not resolved, global trading partners should lose their privileged economic status.

Small Dictionary: The Federal Reserve, the central bank of the United States, is responsible for setting monetary policy, including interest rates, and supervising the country's money supply.

The approach echoes Trump's early criticism of the Fed's interest-rate decision during the chairmanship of Jerome Powell. Currently, the central bank is led by former Federal Reserve Governor Kevin Warsh, who has Trump's support, which could add new dynamics to central bank decision-making ahead of the next meeting.

Inflation data will guide the Fed's next move

The Fed's commitment to raise interest rates depends on new inflation data expected next week. Federal Reserve Chairman Kevin Walsh recently said at the Jackson Hole Symposium that without sufficient evidence that inflation is returning to the official 2% target, policymakers will have more work to do. This is his clearest signal yet that further interest rate hikes are still possible if inflationary pressures persist.

Analysts believe that the latest employment and wage data will add pressure to the Fed as it adjusts its methodology, but the upcoming inflation report may have a decisive role in final policy decisions.

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