Treasury Secretary Scott Bessent signaled the White House respects the Federal Reserve's independence ahead of an anticipated rate hike this week, acknowledging that bond markets wield more power than military force in constraining government policy. The FOMC meeting comes as stronger-than-expected employment data and stubbornly high inflation may justify tightening, despite President Trump's preference for looser financial conditions. Wall Street analysts warn that if the Fed fails to act on inflation, bond markets could force rates higher by interpreting inaction as policy acceptance of higher inflation.
The Federal Reserve's hiking cycle appears revived after August's CPI report showed core prices rising 0.3%, above expectations, prompting traders to price in an 85% probability of a rate hike next week. Chair Kevin Warsh's ambiguity and Fed Governor Christopher Waller's hawkish signals elevated the importance of the inflation data, which revealed significant pressure from wireless services while broader concerns linger over rising energy prices and tightening financial conditions.