Wharton professor says midterms, Trump halt Fed rate hikes

Pressure from the 2026 midterm elections and President Donald Trump is preventing the Federal Reserve from raising interest rates, according to Wharton finance professor Jeremy Siegel.

Siegel made his comments following an August jobs report that came in stronger than anticipated. On Truth Social, Trump also posted a threat to stop trading with surplus nations if the Fed does not cut rates.

August Jobs Report Alters Rate Discussion

In August, the US economy gained 162,000 jobs, more than three times the recent average per month. The unemployment rate was unchanged at 4.1%, while annual wage growth remained at 3.1%.

Siegel described the labor market as driven by supply rather than overheating. Participation in the labor force climbed to 61.6%, and upward revisions to June and July totals added 55,000 jobs.

As a result, traders increased their wagers on a rate increase rather than a reduction. The change in expectations relates to the Federal Open Market Committee (FOMC) meeting later this month.

This is a turnaround from the outlook following July's disappointing payroll numbers.

Trump's Threats Face a Hawkish Federal Reserve

On Friday, Trump again posted a demand he has been making for several months.

"We should have the LOWEST INTEREST RATES of any country in the World … CUT INTEREST RATES OR I WILL STOP TRADING WITH COUNTRIES WHERE WE HAVE A DEFICIT."

The post was written on Friday, according to Reuters, which first reported it. Trump has repeatedly pressed the Fed to lower rates throughout this year.

Siegel noted that the midterm elections give Trump extra motivation to maintain low borrowing costs. As a result, a September rate increase would be politically difficult for the White House.

Fed Chair Kevin Warsh has not indicated any such move. Siegel highlighted that M2 money supply has grown by about 10% since the start of the Iran conflict.

The conflict, a short war between the US and Iran, concluded in June. Siegel described the pace of money supply growth as excessive.

He also pointed out that Warsh had mentioned money supply as an important indicator in his Jackson Hole speech last month.

Siegel believes that a rate increase would cause only a short-lived negative response in markets. As long as tariffs remain under control, traders would probably support the Fed's efforts to protect its credibility on inflation.

The producer price index and consumer price index reports scheduled for Thursday and Friday this week should provide clarity on the debate.