Stronger-than-expected employment data has lifted market expectations for a rate hike at this week's Federal Open Market Committee (FOMC) meeting, with interest rate traders now pricing the probability at 58.4%.

According to CME's FedWatch, nearly 60% of investors are betting on a 25bps hike that would lift rates to a range of 3.75% to 4%, while the remainder expect the Kevin Warsh-led central bank to announce a hold instead. The pricing is derived from fed funds futures, which traders use to hedge or speculate on the Fed's short-term policy rate, making it a widely watched real-time gauge of market expectations ahead of each FOMC decision.

The renewed call for a hike follows a Bureau of Labor Statistics (BLS) report released Friday, which showed the U.S. economy added 162,000 jobs in August while the unemployment rate held steady at 4.1%. The report lands at an awkward moment for the new Fed leadership: a firm labor market strengthens the case for tighter policy just as the White House is pushing aggressively for the opposite.

Inflation data, the other side of the Fed's dual mandate—maximum employment and stable prices—has been less cooperative. The BLS's latest report, released in mid-August, showed the all-items index for the past 12 months at 3.4%—well above the FOMC's 2% target. The next Consumer Price Index report is due Friday, and with supply-side shocks such as the Middle East conflict and tariffs still ongoing, analysts expect the data will further reinforce the case for a hike at the FOMC meeting concluding Sept. 16. Supply-driven price pressures are generally harder for interest rate policy to address than demand-driven ones, since higher borrowing costs do little to lower costs stemming from disrupted shipping lanes or import duties.

Macquarie's David Doyle wrote in a Friday note: "While the timing remains uncertain, we move our baseline case for the first 25 bps hike to September [previously December]. We continue to anticipate a second 25 bps hike in 1Q27."

Bank of America also expects a hike next week, with its U.S. macro team adding: "If August core [Personal Consumption Expenditures] prints at 0.24% m/m or higher, there is a good possibility we go into the September meeting with hike odds above 50%. In that scenario, a decision not to hike could raise questions about the Fed's credibility, likely showing up in higher long-end yields." The PCE price index, the Fed's preferred inflation gauge, runs on a different release schedule from CPI, which is why markets are watching both prints this month.

A rise in yields, as occurred after the July FOMC meeting, would likely undo the work Treasury Secretary Scott Bessent has been carrying out in recent weeks through Treasury buybacks. Buybacks of longer-dated securities are designed to ease pressure on long-term borrowing costs, which influence mortgage rates and corporate financing, and a hawkish Fed surprise could offset that effect.

UBS said it expects two hikes this year, in September and December, though chief investment officer Mark Haefele argued that the context of a hike matters more than the move itself. He wrote Monday morning: "The important question is not whether rates move higher, but what is the backdrop against which they do. A Fed responding to U.S. economic strength is very different from a Fed responding to inflation problems. For portfolios, that distinction matters far more than the next policy meeting."

Lobbying begins

The Trump camp has yet to secure the base rate reduction it pressed former chairman Jerome Powell to enact. President Donald Trump went to extraordinary lengths in his bid to obtain an interest rate cut, a pressure campaign that spanned much of Powell's tenure and repeatedly raised questions about the traditional independence of the central bank from political interference. The administration's push for a dovish narrative is to be expected, though it may not be helpful to Warsh, Trump's pick to lead the Fed, who now faces the task of establishing credibility with markets that watch closely for signs the Fed is swayed by the White House.

"Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!" Trump wrote on Truth Social, a platform he owns, on Friday afternoon.

The president also issued a new threat: if rates do not come down, he will stop the U.S. from trading with countries with which it runs a trade deficit. "The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change," the president continued. "High interest rates put the U.S.A. at a very unfair disadvantage, and I won't allow that to happen!"

Vice President JD Vance echoed a similar sentiment, saying Trump was determined to push rates down because it would help Americans afford a home. "We're doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve," Vance said last week.

For Warsh, this week's decision is an early test of how the central bank balances strong labor data, above-target inflation, and an unprecedented public pressure campaign from the administration that appointed him. Markets will be watching both the decision and the accompanying communications for signals of how much weight the new chair places on each.

This story was originally featured on Fortune.com.