Why Trump can't have it both ways on rates

Politico

12 hours ago

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Quick Fix
President Donald Trump wants a strong labor market and low interest rates. Right now, those goals aren't compatible.
Economists expect the Labor Department to report this morning that employers added 125,000 jobs last month. If the number exceeds expectations, it will be yet another sign of economic resilience despite the effects that Trump's trade agenda, market convulsions and touch-and-go recession fears have had on sentiment. It would be great news for a White House that has reveled in recent positive economic data and has sparred with Wall Street heavyweights or reporters who spotlight the risks posed by the president's agenda.
But it would also give Federal Reserve Chair Jerome Powell a case to hold rates higher for longer. Higher borrowing costs might help keep a lid on inflation — and further weaken rate-sensitive sectors like housing — until there's greater clarity on how tariffs ultimately affect consumer prices. The Fed is scheduled to announce its interest rate decision on June 18.
Obviously, that's not what Trump wants. The president used this week's tepid private sector hiring report from the payroll processing firm ADP to lash out at the Fed chair — whom he's nicknamed 'TOO LATE' — and make a case for why he 'must now LOWER THE RATE.'
And there are signs that the labor market is flagging. U.S. employers announced layoffs affecting nearly 94,000 positions last month — a 47 percent increase over April of last year, according to a report from outplacement firm Challenger, Gray & Christmas. Jobless claims for the week following the Memorial Day holiday jumped more than many economists had predicted, the government reported on Thursday. And the Institute for Supply Management's manufacturing and service sector employment indices were both in contraction territory in May.
But if today's jobs report disappoints — EY's Gregory Daco sees job growth falling below 100,000 — it will be taken as a sign that Trump's trade agenda is starting to wear on employers. While a softening labor market increases the likelihood that Powell accelerates the timeline for rate cuts, it would also suggest the economy is in much worse shape than anyone in the White House would like. Trump would then face more political pressure — from both Wall Street and industry — to dial back his protectionist trade policies.
Julien Lafargue, the chief market strategist at Barclays Private Bank, put it this way: 'Anything below the 100,000 mark could reignite recession fears while a stronger-than-expected print could perversely be negative for risk assets as it would likely put upward pressure on yields.'
In other words, for Trump, the odds that he'll get a Goldilocks economy and low rates — soon — look slim. We'll see at 8:30 a.m. when the Labor Department puts out its report.
IT'S FRIDAY — What are you looking for in the jobs report? Let me know. And as always, send your tips, suggestions and personnel moves to Sam at [e-mail].
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Driving The Day
Federal Reserve Vice Chair for Supervision Michelle Bowman will speak at a Psaros Center for Financial Markets and Policy event on financial regulation at 10 a.m.
Food Fight — Elon Musk, the godfather of the Department of Government Efficiency and one of Trump's most powerful boosters during the 2024 campaign, was already on the warpath against GOP leaders over the president's 'big beautiful bill.' On Thursday, he went after Trump. Suffice it to say, it got personal.
— As Irie Sentner reports: 'In a Washington full of big money and bigger personalities, it's shaping up to be the breakup of the decade. And it's happening for all the world to see … Musk suggested the president should be impeached, Trump threatened Musk's companies, and Musk even threw out allegations related to Jeffrey Epstein.'
— The consequences have the potential to simultaneously 'derail the president's agenda and Musk's personal fortune,' Irie writes. As the feud spilled across X and Truth Social, shares of Tesla notched their worst day ever, erasing more than $150 billion of market value, according to the WSJ.
Trust us. — The White House is also dialing up its attacks against both the Congressional Budget Office and outside experts over projections that the megabill could cause debt levels to spike in exchange for mediocre economic returns, The NYT's Tony Romm reports.
Revival — Binance has survived its legal battles with U.S. regulators. Now, the global crypto exchange is emerging as a major beneficiary of Trump's pro-crypto pivot. Declan Harty has more in a Q&A with the exchange's CEO, Richard Teng.
TRADE CORNER
Too much news — Before the Musk spat overtook the news cycle, Trump had a 'very good phone call' with Chinese leader Xi Jinping amid tense negotiations over tariffs and other trade barriers, per Megan Messerly, Phelim Kine, Ari Hawkins and Daniel Desrochers.
— Treasury did not identify the country as a currency manipulator in its semi-annual report on the foreign exchange practices of major trading partners, Doug Palmer reports.
Trade deficit falls — Doug also reports that the trade deficit fell sharply in April after hitting a record high in March.
Talking Points
First in MM: From Wall Street regulator to crypto lobbyist — In one of her first interviews as Blockchain Association CEO, Summer Mersinger, a former CFTC commissioner, spoke with Declan Harty about the critical but chaotic moment facing crypto in Washington today.
The following is an excerpt of their conversation, edited for length and clarity.
With the regulatory landscape shifting, how are you thinking about this moment for crypto in Washington?
Just a year ago, there was this discussion around all the risks involved with blockchain and crypto, and now, we're at a point where Congress is on the cusp of passing a stablecoin bill. So it's a critical time for the industry. It's a critical time for the policymakers, and it's the opportunity that I think the industry needs to come together, be a unified voice and really push this forward so that the U.S. can become a global leader in this space.
How do you hope to use your experience at the CFTC as you lead the Blockchain Association?
My time at the CFTC taught me a lot about these markets and the ways that a well-regulated market functions. But if you go back further in my history, I came from Capitol Hill — that's where I spent most of my career. And I'm hoping that I can use those skills to really help BA and the members get that critical legislation accomplished.
Do market structure and stablecoin legislation need to be packaged together?
They both stand on their own. I trust Congress to do what's best to get legislation to the president's desk, and however they decide to move forward, we're going to be supportive. … If stablecoin [legislation] gets to the president's desk before the other, I see that as a win — and it just adds momentum to the market structure bill.
On The Hill
Trouble in Senate Banking — Senate Banking Republicans are skeptical that some of the measures being sought by Chair Tim Scott (R-S.C.) for the megabill can comply with the strict rules governing the filibuster-skirting budget reconciliation process, Jasper Goodman reports.
Markup incoming — Katherine Hapgood reports that House Financial Services Chair French Hill (R-Ark.) plans to move ahead with a landmark crypto market structure bill on Tuesday over objections from Democrats, who want more time to negotiate.
Adios — The House passed a bill Thursday that would remove Small Business Administration offices from 'sanctuary cities' that limit cooperation with federal immigration authorities, Katherine reports.
First in MM — Democrats led by Rep. Nydia Velázquez (D-N.Y.) and Rep. Maxine Waters (D-Calif.) on Friday introduced a new bill to counter the administration's rollback of rules that required businesses to disclose their true owners. Under the bill, the Financial Crimes Enforcement Network and the SBA would have to coordinate on multilingual guidance, education and scam prevention to make compliance easier, Katherine reports.
GOP senators look to codify DOGE operations of Treasury payment systems — Congressional DOGE Caucus Chairs Sen. Joni Ernst (R-Iowa) and Rep. Aaron Bean (R-Fla.) will introduce legislation next week to codify changes that the cost-cutting operation once led by Elon Musk made to the Treasury Department's payments system.
The bill would require Treasury to have a description of the payment, link it to a budget account and crosscheck the payment against government databases to ensure accuracy and eligibility, Katherine reports. Ernst said the measure would save billions over the next 10 years. 'Enacting safeguards to spending has been one of the Trump administration's and DOGE's greatest triumphs, and I am determined to codify it and make it permanent.'
Jobs report
David Maurstad, the former senior director of the National Flood Insurance Program, recently launched Maurstad Advisors, LLC to advise on issues like insurance brokerage, resilience planning and crisis communication.