A stronger-than-expected August jobs report has pushed traders to raise their bets on a Federal Reserve rate hike this month, even as President Trump publicly demands a cut. The clash leaves EUR/USD traders watching whether next week's inflation data tips the Fed's September 15-16 decision toward tightening.
U.S. employers added 162,000 jobs in August, nearly three times what economists had expected, and short-term interest-rate futures now imply a 62% chance of a Fed rate hike this month, up from about 55% before the report. The dollar's rate path, and with it EUR/USD, now hinges on whether the Fed leans into that tightening case at its September meeting.
A tighter labor market complicates the Fed's call
Labor force participation rose to 61.6%, driven by 300,000 people moving directly from the sidelines into jobs, while the unemployment rate held steady at 4.1%. Hourly earnings growth stayed at 3.1%, a pace Fed officials have said is not adding to inflation pressure.
Fed Chairman Kevin Warsh said last Friday he needs confidence inflation is moving back to the Fed's 2% target clearly and at sufficient speed, a remark widely read as leaving the door open to a hike. Inflation has run above that target for five and a half years. Evercore ISI's Krishna Guha said the hawkish tone at Jackson Hole shifted the onus onto the data to justify not raising rates.
Trump demands a cut as hike odds climb
President Trump responded on Truth Social, saying "We should have the LOWEST RATE of any country in the World" and pressing the Fed to act before next week's inflation reports. He also threatened to stop trading with countries the U.S. runs a deficit with unless rates come down, a threat that could send the global economy into a slump.
Not every Fed official is convinced a hike is needed. Fed Governor Christopher Waller said Thursday he would support holding rates in the 3.50%-3.75% range if next week's inflation data continues to moderate. Nationwide Chief Economist Kathy Bostjancic instead now sees two 25-basis-point hikes by year-end, lifting the fed funds rate to 4-4.25%.
EUR/USD traders are left weighing that split outlook against Trump's public pressure campaign, with next Friday's consumer price data set to settle the argument either way.
Source: Economy News (Investing.com)
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