U.S. President Donald Trump criticizes the Federal Reserve as job losses occur in the country
The US jobs market experienced a significant slowdown over the summer, with only 73,000 jobs added in July, according to recent figures from the US Bureau of Labor Statistics (BLS). This weaker-than-expected jobs data has sparked speculation about a potential interest rate cut by the Federal Reserve, as the labor market's strength appears to be fading.
Before the July jobs report, the consensus was that the Fed would hold rates steady in the near term, with possible rate cuts coming later in the year as economic and labor market conditions softened. However, the July jobs report has changed this calculus, providing clear early evidence that labor market strength is waning.
The expectation for a Fed rate cut stems from the July jobs report's indication that the labor market is weakening, which shifts the balance of risks toward easing monetary policy to sustain economic growth and prevent a sharper slowdown. Market participants and economists have sharply revised down their outlook for how long the Fed will keep rates elevated, increasing the probability of rate cuts beginning as soon as September.
For instance, Goldman Sachs Research had forecast that September could see a 25 basis-point cut given signs of a labor market softening and the reduced inflationary impact of tariffs. Similarly, economists noted that the Fed intended to keep rates steady at the 4.25%–4.5% range to manage inflation while monitoring risks from tariffs and the labor market.
The weakening labor market reduces inflationary pressure and the risk of overheating, thus giving the Fed more latitude to loosen monetary policy through rate cuts to support economic growth. Consequently, the market now expects the Fed to begin cutting rates sooner than previously anticipated, potentially at the September meeting, to preempt further economic cooling and support the labor market.
In addition to the jobs report, the US stock market has also been affected by the ongoing trade tensions. US stocks tumbled after Trump imposed tariffs, with the Dow Jones Industrial Average falling 1%, the S&P 500 dropping 1.2%, and the Nasdaq down 1.7%. European stocks were also impacted, with Germany's Dax losing 2.7% and Paris's Cac index dropping 2.9%. The UK's FTSE 100 fell 0.7%, while pharmaceutical firms, such as AstraZeneca and GSK, were among the biggest fallers in London.
President Trump has been vocal about his dissatisfaction with the Federal Reserve's current interest rate policy, launching a fresh attack on the chair and urging them to drop the interest rate. The President has also threatened to sack the BLS head, Erika McEntarfer, in retaliation to the agency's revisions of May and June jobs figures, lowering them by 258,000 and 125,000 respectively.
However, it is unclear whether these developments will lead to changes in the Fed's leadership, as the President has earlier insisted that he would only fire the Federal Reserve chair if he were guilty of fraud. Reports have suggested that the future of the Federal Reserve chair, Jerome Powell, could be in doubt due to disagreements with the President.
In summary, the expectation for a Fed rate cut arises from the July jobs report's indication that the labor market is weakening, which shifts the balance of risks toward easing monetary policy to sustain economic growth and prevent a sharper slowdown. The US stock market has also been affected by the ongoing trade tensions, with US stocks tumbling after Trump imposed tariffs. President Trump has been vocal about his dissatisfaction with the Federal Reserve's current interest rate policy, but it remains unclear whether these developments will lead to changes in the Fed's leadership.
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References: 1. Federal Reserve's Dilemma: Balancing Inflation and Trade Tensions 2. Goldman Sachs sees 25 basis-point rate cut in September 3. Fed rate cut odds rise as jobs data disappoints 4. Fed holds rates steady, signals more rate hikes ahead
- The weaker-than-expected jobs data in July, as reported by the US Bureau of Labor Statistics (BLS), has sparked speculation about a potential interest rate cut by the Federal Reserve, with market participants and economists increasing the probability of rate cuts beginning as soon as September.
- The growing expectation for a Fed rate cut stems from the labor market's indication of weakening, which shifts the balance of risks towards easing monetary policy to sustain economic growth and prevent a sharper slowdown.
- Apart from the jobs report, the US stock market has been affected by ongoing trade tensions, with stocks such as the Dow Jones Industrial Average, S&P 500, Nasdaq, DAX, Cac, FTSE 100, and various pharmaceutical firms experiencing significant drops after the imposition of tariffs.
- President Trump has repeatedly expressed his dissatisfaction with the Federal Reserve's current interest rate policy and has advocated for rate cuts, but it remains unclear whether these developments will lead to changes in the Fed's leadership.
- When making investment decisions, one can seek guidance from various online resources, such as those offered by AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212.
