Washington’s house is divided over interest rates

Hello, this is Hui Jie writing to you from Singapore. Welcome to another edition of CNBC’s Daily Open.

Abraham Lincoln warned that “a house divided against itself cannot stand.” On interest rates, Washington is indeed divided.

Federal Reserve Chair Kevin Warsh has signaled that a rate hike could be on the table. Governor Christopher Waller says rates could remain unchanged if inflation continues to cool. Vice President JD Vance wants them lowered.

Given that, markets are in guessing mode on which option the Fed will circle in later this month.

U.S. markets rallied Thursday, following signals from Waller that he would support holding rates if inflation data came in as expected.

The S&P 500 posted back-to-back gains, while the benchmark 10-year Treasury note yield fell to 4.77%. On Wednesday, the yield hit its highest level since November 2023.

The probability that the Fed would raise rates at its September meeting is down to 50.2%, according to the CME FedWatch tool, from 63.2% on Wednesday.

Waller, in a Reuters interview, expressed confidence in current inflation trends, saying that impacts from tariffs and higher energy prices did not really affect the economy.

While he said inflation was “meaningfully above” the Fed’s 2% target, he noted that recent trends “suggest we are finally seeing some signs of disinflation.”

Vice President JD Vance went even further, asking the Fed to lower rates so as to make homes more affordable.

“We believe that the Fed should be lowering interest rates,” he said, calling it the “proper and responsible” response to recent U.S. inflation data and reinforcing calls from President Donald Trump.

All these stand in stark contrast to Fed Chair Kevin Warsh, who signaled at the Jackson Hole symposium last week that he would raise rates in order to address persistently high inflation.

Carney fires back

Away from the markets, the U.S.-Canada trade spat started up again, with Canadian Prime Minister Mark Carney responding to claims by U.S. Commerce Secretary Howard Lutnick that Ottawa had scuppered trade talks with the U.S. for political purposes.

“I don’t think, with all respect, appointed, unelected Cabinet members in the United States are experts on Canadian politics,” Carney said, adding that his administration will always stand up for Canada’s best interests.

But the prime minister maintained that a deal benefiting both Canada and the U.S. was possible. “We’re ready to sit down and strike that deal when the Americans are ready,” he said.

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