Donald Trump is trying to create his own more helpful fiscal facts

Times

3 days ago

Donald Trump's assault on America's independent economic authorities makes Liz Truss look like a status-quo cheering, institution-hugger.
This month the US president has summarily fired the head of the country's independent statistics body after he didn't like the look of recent jobs data. Last week Trump appointed one of his closest allies — Stephen Miran — to fill a seat on the board of the independent central bank (at least temporarily) as part of a sustained effort to force interest rate cuts. Just as the administration has come for universities, courts and all manner of federal agencies, Trump is bringing the US's independent economic institutions, which set interest rates and publish data, to heel.
He baselessly accused Erika McEntarfer, the deposed head of the Bureau of Labor Statistics (BLS), of faking jobs numbers. A host of former BLS chairs, including one appointed by Trump, have warned that the firing, which is unprecedented in US history, is 'without merit and undermines the credibility of federal economic statistics that are a cornerstone of intelligent economic decision-making by businesses, families and policymakers'.
Paul Krugman, a Nobel prize-winning economist, has dubbed the spectacle 'Caracas on the Potomac' but few in the financial markets or investors who hold US assets share his alarm. In fact, few seem to have even noticed. Money managers are now the most bullish about the state of the US economy since February, when markets were ignoring Trump's tariffs obsession and still believed in American exceptionalism, according to a survey of fund managers from Bank of America.
The blind optimism can be justified to some extent: the US's effective tariffs have settled at a level — about 15 per cent — below where most feared in April. Bumper earnings for dominant American AI firms have propelled stock valuations higher this month. And if Trump does force interest rate cuts, that will support equities and the economy more broadly.
What is stranger about the nonchalance of investors to the prospect of 'Caracas on the Potomac' is that when directly asked about the politicisation of monetary policy, most think it will happen. Bank of America's survey asked participants this month whether the next head of the Federal Reserve would engage in overt financial repression — through mass bond purchases — to help to massage down US federal debt levels. A clear majority of 54 per cent answered 'yes'. Only 36 per cent said 'no'.
The question was not just about whether the next Fed chair would cut interest rates as Trump has demanded, but whether the institution will be subservient enough to restart quantitative easing, not to support the economy but to give Trump more fiscal headroom. This is precisely the strain of fiscal dominance that is common in Venezuela, Argentina and other reputation-battered emerging markets. These are also the same investors whose bullishness on the US economy and stocks is at a six-month high.
What explains the dissonance? Well maybe a single survey response should just be discounted. The other is one of time horizon: yes the Fed may be becoming a hollowed-out extension of the executive but investors are ready to ride the stocks wave and price that risk when they come to it.
There are also plenty of other mitigating factors that can explain the markets' shrug. The most immediate is that although it is widely assumed that Trump will appoint a lackey as head of the BLS, no name has been announced (at the time of publication). Another is that there are legitimate accuracy concerns with official economic stats in the US. The BLS has been a victim of Trump's federal cuts and has been forced to suspend price collection in some metro areas for its consumer price inflation measure. The BLS collects 90,000 prices from across 200 categories but cuts now mean that 'almost a third of the prices going into the CPI at the moment are guesses based on other data', Torsten Slok at Apollo says.
The BLS is also suffering from record low response rates from households for surveys that measure employment and payrolls, a problem most acute in the UK. None of this is to say that Trump is right and the numbers are being faked. Rather that the veracity of economic data can no longer be taken for granted in the post-pandemic era in many developed world economies.
Another commonplace and complacent answer is that investors will just rely more on alternative private sector surveys of the jobs market or inflation to understand what is really going on in the economy. To a large degree, this is what the Bank of England has been forced to do for the past year over its frustrations with the Office for National Statistics' labour force figures. But it is fanciful to think that unofficial private sector measures will not be subject to the same tirade and attacks that Trump has aimed at federal bodies. More parochially, private surveys are not as representative as official, country-wide measures as they rely on their customers or clients as respondents.
There are also plenty of reasons that Trump's attacks on the Fed have not raised investor alarm. Miran, for example, will be one voter among twelve: the Fed's interest rates decisions are taken by a committee of which the new chair is only one and rate cuts at this juncture can be justified by a slowing labour market.
These are all true but risk missing the point. Whether and why investors care about the systematic undermining of economic governance is not as important as the societal and political implications of a president concocting an alternative economic reality and presenting it as the 'truth'. The risk that Trump will create his own economic facts on the ground have been present from his first administration. He is now taking the steps to achieve this. His chosen media organs will report on these alternate measures of booming growth, jobs and disinflation from tariffs or tax cuts. It is voters who will be unable to discern truth from fiction as Trump floods the zone with his lies, damned lies and statistics.
Mehreen Khan is Economics Editor of The Times