The paradox of President Trump’s economy is that winning the blowout growth he wants from the labor market means he’s less likely to get his way with the Federal Reserve.
“If we had a Fed that would lower interest rates, we would be like a rocket ship,” Trump told reporters on Friday after the latest data from the U.S. Labor Department showed employers adding 224,000 positions in June. The unexpected surge, which topped projections from economists by 37%, pushed average growth this year to 172,000 positions a month and tempered data that shows the U.S. economy cooling.
“Clearly, this report is in the camp of positive views, suggesting that the concerns the Fed has about slowing in the second half may not be completely warranted,” Joseph Song, an economist with Charlotte, N.C.-based Bank of America, told the Washington Examiner.
The growth, coupled with Trump’s agreement to refrain from further tariffs on Chinese imports for now, makes it less likely the Federal Reserve will cut rates before September, he said. Rival Wall Street firms, some of which predicted a 50 basis-point cut by the end of this month without a tariff deal, agree the labor market’s rebound complicates the outlook.
The White House has rattled both financial markets and corporate executives with 25% duties on $250 billion of Chinese imports and threats to tack them onto another $325 billion of goods if the two countries can’t reach a deal to give American companies more access to China’s markets. Trump allayed some of the worries late last month, however, when said he would delay the additional duties indefinitely after conferring with Chinese President Xi Jinping at the G-20 summit in Osaka, Japan.
The tariffs, which drive up prices of goods sold in the U.S., come on top of levies on steel and aluminum. Trump has also threatened duties on auto imports and merchandise from Mexico if that country doesn’t live up to his expectations on curbing illegal immigrant traffic across the southern U.S. border.
“We have been mindful of some ongoing crosscurrents, including trade developments and concerns about global growth” that have heightened over the past six weeks, Fed Chairman Jerome Powell said during a June news conference in which the Fed all but promised the next change to interest rates would be a reduction.
British lender Barclays Plc, which had predicted the panel would lower short-term rates this month by 50 basis points, to a range of 1.75% to 2%, expects a reduction of just half that size after June’s job growth.
The employment situation is likely to give committee members “comfort that the economy is not slowing as sharply as data in April and May indicated,” said Michael Gapen, an economist with the firm. “We still believe the Fed will ease at the July meeting, given its previous communication and inflation that remains stubbornly below target, but we see less need for the Fed to act aggressively.”
Trump, who has pushed the Federal Reserve to cut rates that it raised four times in 2018 alone, says the current range of 2.25% to 2.5% places him at a disadvantage in comparison with his predecessor, Barack Obama, who “paid close to zero interest rates.” The president has vented his frustration in blistering comments about Powell, his handpicked successor to Janet Yellen, and reportedly asked aides whether he had the power to remove him.
Powell, who has deflected most questions about the matter, says he plans to serve out the four-year term prescribed by law, which allows the Fed chairman’s removal only “for cause,” a term generally interpreted as referring to misconduct.
In the meantime, if economists are cautious about the short-term outlook for interest rates, Wall Street investors are not. Trading in interest-rate futures tracked by CME Group’s Fed Watch tool shows a 95% chance the Fed will trim rates by 25 basis points this month and a 5% chance it will lower them by as many as 50 basis points.
“The acceleration in economic activity since last year’s tariffs is becoming increasingly clear,” but it makes the monetary policy committee’s decision more difficult, said Rob Martin, an economist with Swiss lender UBS.
While the investment bank still expects a 50-point cut in July, the case for leaving rates alone is growing, Martin said. “Powell cannot catch a break.”
