Global markets spent the week caught in a tug-of-war over US interest rates, one that took a bizarre turn when Trump picked a fight with the Fed chair he hand-picked himself. Kevin Warsh took over from Jerome Powell in May, installed after Trump spent over a year demanding rate cuts, but Warsh has held rates steady at both meetings since and used his first Jackson Hole speech to sound hawkish, warning that underlying inflation "hasn't meaningfully improved".
Markets whipsawed accordingly. Christopher Waller, one of the Fed's seven governors, said he'd support holding rates steady if inflation keeps easing, which briefly lifted Wall Street, with the Dow, S&P 500 and Nasdaq all closing over 1% higher and rate-hike odds cooling from 63% to 50%.
That calm didn't last. Friday's August jobs report blew past expectations, with employers adding 162,000 jobs versus the roughly 56,000 forecast, reviving hike bets and pushing the 10-year Treasury yield back toward its highest level since November 2023.
Trump's response was to escalate, threatening on Truth Social to halt trade entirely with every country the US runs a deficit with, over $1.2 trillion worth, unless the Fed cuts rates, calling it "better than tariffs."
For Australia, the stakes are the interest rate path itself. Elevated US yields keep the US dollar firm and borrowing costs high globally, pressure that flows straight through to the ASX, where high-growth and tech names are most sensitive to where US rates land. An actual trade embargo would also be a fresh shock to global trade flows that an export-heavy economy like Australia's would feel quickly.