The Trump administration is intensifying pressure on the Fed, hoping to prevent a rate hike at the September 15-16 meeting. Senior officials have called on the Fed not to raise rates, and in some cases, to cut them, amid inflation concerns. President Donald Trump has avoided directly criticizing Kevin Warsh, the new Fed chair, but has threatened to suspend trade with countries that have trade surpluses with the U.S. if the Fed does not lower rates. Meanwhile, markets have barely priced in a rate hike, assigning about a 60% probability, which increased slightly after strong jobs data on Friday. There are also questions about the impact of the Trump administration's pressure campaign on Warsh, as earlier reports indicated that Trump had spoken with Warsh multiple times, but the president denied this, saying they had only spoken once. Warsh has affirmed that the president has no influence on his decisions and stated that the Fed should focus on inflation, noting that 54% of the components of the PCE price gauge have risen more than 3% over the past 12 months. Markets will be watching Friday's CPI report, which could be a decisive factor in the Fed's decision.
Pressure to cut rates before September meeting implies lower policy rate, so the effective federal funds rate is expected to decline.
Potential rate cut would lower yields on government bonds, including the 10-year.
