Trump scores major own goal with labour official firing
Trump has spent six months attacking the Federal Reserve, and Chair Jerome Powell in particular, for not cutting interest rates. The barbs culminated in Trump branding Powell a "stubborn MORON" in a social media post on Friday before the July jobs report was released.
The numbers, especially the net downward revision of 258,000 for May and June payrolls growth, were much weaker than expected. In fact, this was "the largest two-month revision since 1968 outside of NBER-defined recessions (assuming the economy is not in recession now)," according to Goldman Sachs.
This release sparked a dramatic reaction in financial markets. Fed rate cut expectations soared, the two-year Treasury yield had its steepest fall in a year, and the dollar tumbled.
A quarter-point rate cut next month and another by December were suddenly nailed-on certainties, according to rate futures market pricing. This was a huge U-turn from only 48 hours before when Powell's hawkish steer in his post-FOMC meeting press conference raised the prospect of no easing at all this year.
Trump's constant lambasting of "Too Late" Powell suddenly appeared to have a bit more substance behind it.
The Fed chair's rate cut caution centres on the labour market, which now appears nowhere near as "solid" as he thought.
Trump could have responded by saying: "I was right, and Powell was wrong."
Instead, on Friday afternoon he said he was firing the head of the Bureau of Labour Statistics, Commissioner Erika McEntarfer, for faking the jobs numbers.
Trump provided no evidence of data manipulation.
So rather than point out that markets were finally coming around to his way of thinking on the need for lower interest rates, Trump has united economists, analysts and investors in condemnation of what they say is brazen political interference typically associated with underdeveloped and unstable nations rather than the self-proclaimed 'leader of the free world'.
"A dark day in, and for, the US," economist Phil Suttle wrote on Friday. "This is the sort of thing only the worst populists do in the worst emerging economies and, to use the style of President Trump, IT NEVER ENDS WELL."
It's important to note that major – even historic – revisions to jobs growth figures are not necessarily indicative of underlying data collection flaws.
As Ernie Tedeschi, director of economics at the Budget Lab at Yale, argued on X over the weekend: "BLS's first-release estimates of nonfarm payroll employment have gotten more, not less, accurate over time."
It should also be noted that the BLS compiles inflation as well as employment data, so, moving forward, significant doubt could surround the credibility of the two most important economic indicators for the US - and perhaps the world.
Part of what constitutes "US exceptionalism" is the assumption that the experts leading the country's independent institutions are exactly that, independent, meaning their actions and output can be trusted, whatever the results.
Baseless accusations from the US president that the BLS, the Fed and other agencies are making politically motivated decisions to undermine his administration only undermine trust in the US itself.
"If doubts are sustained, it will lead investors to demand more of a risk premium to own US assets," says Rebecca Patterson, Senior Fellow at the Council on Foreign Relations. "While only one of many forces driving asset valuations, it will limit returns across markets."
This furor comes as Fed Governor Adriana Kugler's resignation on Friday gives Trump the chance to put a third nominee on the seven-person Fed board, maybe a potential future chair to fill that slot as a holding place until Powell's term expires in May.
Whoever that person is will likely be more of a policy dove than a hawk.
Policy uncertainty, which had been gradually subsiding since the April 2 'Liberation Day' tariff turmoil, is now very much back on investors' radar.
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