A long time coming, Federal Reserve cuts interest rates

The long anticipated day finally came on Wednesday that had long been sought, the Federal Reserve's Open Market Committee cut its benchmark interest rate by a quarter of a point to the new rate of 4.00 to 4.25 percent, a move that had been long predicted, and was based on the August Jobs Report by the Labor Dept, that showed non farm jobs drifting downward to  22,000.

“There’s very little growth, if any, in the supply of workers. And at the same time, demand for workers has also come down quite sharply, to the point where we see what I’ve called a curious balance,” Powell said.

Of course this is not enough for President Trump who has long called for a greater cut of at least 3 percent, but which economists have wanted could lead to inflation. And, it’s well known that in this desire the president has pummeled Fed Chair Jerome Powell, and wants to have greater control over the Fed, an independent entity founded in 1913, and has tried to chip away at the board by attempting to fire governor Linda Cook on an alleged fraudulent mortgage claim, that, on appeal, she is allowed to continue to serve; but, Trump wants a ruling, in his favor by the US Supreme Court.

All politics being local “The president frequently accused Powell — a lifelong Republican who was first appointed to his position by Trump — of waging a political battle against his trade policy. Trump also claimed the Fed should help him reduce the costs of paying down the national debt through lower interest rates, triggering alarm among fiscal experts and Fed historians", according  to The Hill.

Wednesday’s decision was characterized by Powell as “risk management”, and underscores the fact that the US economy faces uncertainty with the on again/off again tariffs by Trump, but also is a leverage point in the balancing calculation that the FOMC faces in meeting its twinned mandate, full employment and keeping inflation at 2 percent.

Notably, as they reported, “Powell said that while the Fed expects inflation to increase due to Trump’s tariffs, the bank is seeing the labor market take far more damage under the weight of higher import taxes and steep cuts to immigration.

“Our policy had been really skewed toward inflation for a long time. Now we see that there’s downside risk, clearly, in the labor market, so we’re moving in the direction of more neutral policy.”

That weakening jobs report was an important factor as is the current inflation rate at 2.9 percent, better than its high of 3.0 percent, but not low enough to meet the mandate. And, to that effect, two more rate cuts have been penciled in for the rest of the year.

“Even if inflation remains high … Powell seemed to be willing to give that the benefit of the doubt and, instead, focus on the risk that any incipient weakness in the labor market might gain momentum and prove harder to arrest over time,” economists at LHMeyer/Monetary Policy Analytics wrote in an analysis.”

To note, job growth in the last three months has only been 29,000 and added to the August report was a call to action for the FOMC. but there was one naysayer, Stephen Miran, a Trump appointee, on loan from the chair of the White House Council of Economic Advisors, to fill a recent vacancy, and he did vote no on the current cut, wanting, as did Trump a much larger cut, a half point at least, and would, and will. In the future undoubtedly ask for increased cuts later this year to meet the president’s goal.

Dissension is not unknown in Washington, and Powell, in a news conference said, “There are no risk free paths here,” showing both tact and restraint, but undoubtedly, was discreetly referring to the continued rise, at least for the moment, of increased tariffs but added, “It’s not incredibly obvious what to do.”

The New York Times reported that, “Powell’s final question [from the media] was whether the debate over Fed independence is putting pressure on inflation expectations. He says the market is not factoring in those concerns right now in terms of setting interest rates. He added that surveys have shown that longer-term inflation expectations have been “rock solid” in terms of running at 2 percent over the longer run, but added, “We don’t take that for granted.”

They also reported, “Powell says a quarter point cut in itself won’t “make a huge difference to the economy,” but that the whole path of rates will influence expectations, which will influence the market in turn. It starts with a 25 basis point rate cut, but the market’s also pricing in a rate path, he said. “I’m not blessing what the market’s doing at all. I’m just saying it’s not just one action.”

As we have noted previously, over the tenure of Powell, he is data driven and sees not politics, but data points in chairing the FOMC, and its care of the US economy, a distinction of the American central bank leadership.

In a nod to economic reality, the chair said to the media after the meeting,“Labor demand has softened, and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant,” and added, “I can no longer say” the labor market is “very solid.”

August Jobs Report: Cooling becomes a chill

In yet another sign of a cooling jobs market The Labor Dept in its monthly report for August, released on Friday, showed that non-farm payrolls were only 22,000 non-farm jobs rather than the expected 75,000 a figure that belies President Trump's glowing statements of a booming economy. And, it also shows that while the expectations were high, the pattern that has emerged is of a country that has not kept up with population growth, and puts more pressure on the Federal Reserve to lower interest rates at its September meeting.

Still on the scenario is economic uncertainty, with the tariffs, on over 90 countries, that Trump has put in place, and once again, the effect on the domestic market is that employers are not going to increase hiring with the prospect of having to increase prices on goods purchased in whole, or in part from foreign markets; and also places the global economy in jeopardy as we have seen since that April announcement in the White House Rose Garden and now India, an important trading partner, faces an eye watering 50 percent tariff on its goods.

Earlier this year American companies relying on imported goods, or parts, stockpiled them to delay passing the cost of tariffs onto customers, but that stockpile may be running out and some American manufacturers reliant on everything from foreign made zippers are becoming increasingly nervous on how and when they have to increase customer prices.

Meanwhile higher income earners and households are managing, due to higher wages that increased by 0.3 percent, or $36.53, that are keeping pace with inflation, while the threat to lower income households is dire as they face those still high grocery prices;  and, with the increased tariffs on Brazil of 40 percent, that morning cup of coffee, whether made at home, or bought at a coffee shop is going to cost a good 30 percent more.

This week an appeals court found that some of the Trump tariffs are illegal and while the case is going to the Supreme Court, on appeal by the White House, it’s no sure bet; and, in such a high stakes area, that the Court, filled with many Trump loyalists, will rule against him; but,Trump has until October 15 for that appeal process to begin.

If he loses there are still workarounds that he can effect tariffs but with Congressional oversight, and not the free hand that he wants. But, it’s also important to keep in mind that in nearly all areas since his second term has begun, the president has ignored the courts and with the help of other GOP stalwarts has placed many loyalists on the courts, not just the Supreme Court, and  he will undoubtedly try to wrangle a victory somehow to keep these tariffs in place.

Globally the United States has taken a hit on its once international dominance gained after World War II, (an 80 year period) and is now over, opined the Financial Times in May, where the author noted, “President Donald Trump is tearing down what remains of the edifice with unparalleled speed and recklessness. Even in the unlikely event that American democracy emerges unscathed from four years of Trumpian revolution, so far as relations between the US and its allies are concerned it will be “never glad confident morning again” (to quote Robert Browning's The Lost Leader).

Domestically, the heavy hitters are health care that logged in at 31,00 but also well below the national average gain of 42,000 over the previous 12 months and significantly there were increases of 13,000 in ambulatory health care services burying, care services and facilities at 9,000 and at the same rate for hospitals, perhaps a reflection of the aging of America, a fact that will only increase with many people living much longer lives than their predecessors.

Notably with the drastic cuts in federal employment there has been a continued decline, at a loss of 15,000 and down by 97,000 since its peak in January and, as noted in prior months, manufacturing declined at 12,000 down by 78,000 over the year.

An important demographic for these firings are Black professional women many of them with decades of experience and the requisite degrees to support their work, and as a recent New York Times piece noted:

“While tens of thousands of employees have lost their jobs in Mr. Trump’s slash-and-burn approach to shrinking the federal work force, experts say the cuts disproportionately affect Black employees — and Black women in particular. Black women make up 12 percent of the federal work force, nearly double their share of the labor force overall.”

“The most recent labor statistics show that nationwide, Black women lost 319,000 jobs in the public and private sectors between February and July of this year, the only major female demographic to experience significant job losses during this five-month period, according to an analysis by Katica Roy, a gender economist.

While on the surface, the administration has said these hirings were reflective of DEI hires, in reality, “The department, [Education] more than a quarter of whose work force was Black women, suspended dozens of people whose job titles and official duties had no connection to D.E.I. Their only apparent exposure to D.E.I. initiatives came in the form of trainings encouraged by their managers — including Mr. Trump’s former education secretary, Betsy DeVos.”

“The A.C.L.U. and a group of employment attorneys alleged that among other things, the dismissals “disproportionately singled out federal workers who were not male or white,” in violation of Title VII of the Civil Rights Act.”

Furthermore, “Kelly Dermody, one of the lawyers representing the plaintiffs, said that of the workers who sought legal help to challenge their dismissals, 80 percent were people of color, and the majority were Black women.”

“When an organization goes after really, really highly competent, singularly great, Black women — the message it sends, the terror it sends to every other professional woman, person of color, really is so profound,” she said.”

Returning to the report, one figure that is closely watched, the labor force participation remained little changed at 62.3 percent, and is bound to be considered by the Federal Reserve as it continues its twin mandate of inflation at below 2 percent, and full employment but, while this figure has not wavered much, currently at 2.7 percent, the overall cooling of the jobs market cannot be overlooked.

It should be noted that the White House in the person of Trump fired the BLS manager, Dr. Erika McEntarfer last month because he felt, without evidence, that last month’s figures, which showed the beginning of the cooling down, and revisions of early reports were cooked, to reflect a bias against him; and, to that effect has nominated a new commissioner, EJ Antoni, a proven loyalist.

CNBC reported. “Earlier Friday, Commerce Secretary Howard Lutnick told CNBC’s “Squawk Box” that BLS jobs reports will be more accurate with McEntarfer gone, because “you’ll take out the people who are just trying to create noise against the president.”

Taking an overall view of why the jobs market is cooling are not only the role of tariffs but the loss of workers, not simply those who are on the margins, seeking work but also the drain from the deportation of immigrant labor, both legal and undocumented, and as Pew Research has shown, significant areas where they dominate, but overall, represent 20 percent of the US workforce, and notably 30 percent in construction, 45 percent of agricultural workers, and 24 percent of all service workers.

Costs, even on a one time basis, for the deportations will cost the US a total of $315 billion dollars as Newsweek reported, from the American Immigration Council, with others estimating a cost of $88 billion per year.

Taking the above into consideration, we are seeing a 4.3 unemployment force with a net reduction of immigrant labor, plus reluctant employers holding off on hiring, which gives a lowered unemployment figure that a casual reader might not be aware of; with a total loss of 750,000 immigrant workers.

The bull in the china shop is inflation, and with next Thursday’s report all eyes will be laser focused on the Fed, as it makes any interest rate decisions.

As has been well known the president is after Federal Reserve Chair Jerome Powell to lower interest rates and has resorted to public name calling, accusations of cost overruns on the headquarters, and in his latest move to wrest control of the Reserve from, its traditional independence from politics, has fired Lisa Cook, the first Black woman to serve as a Reserve governor on a past mortgage application, a charge that she denies, and as The New York Times reported “by forcing out sitting governors, the president could appoint a set of loyalists who share his desire to lower interest rates which the central bank has kept steady in response to persistent concerns about inflation.”

The 3 percent reduction from its current range of 4.25 to 4.6 that the president wants could lead, say many economists, to stagflation, “where prices spike, companies lay off workers, and consumption craters. In that scenario, the Fed would be left with two bad choices. It could cut interest rates to shore up the economy, and risk stoking inflation. Or let the labor market flounder, while getting inflation under control.” said the Times.

Ms. Cook has said she has “no intention of being bullied,” and there are doubts whether Trump could fire her under current legal parameters.

Meanwhile Powell has hinted, say some, that there could be a lowering of interest rates based on the report and dial back on earlier restraints that had been in place, although it’s clear the “soft landing” that he had earlier desired was achieved and gave the US economy stability.

President Trump and the National Guard

When President Trump ordered the National Guard to safeguard American’s capital, Washington DC, in mid August from “violent gangs and bloodthirsty criminals” there was a huge outcry of disbelief, and even horror, from residents and political commentators alike, at what seemed to be an unnecessary action, in a city that has seen a 33 percent drop in homicides, and seemed to be another example of presidential overreach, and while many did Google searches on crime statistics and protested the guard being used this way, and while vast legions of talking heads appeared on national television and social media decrying the president's actions, much seemed, especially, in hindsight to have missed the point of Trump’s actions.

This seems not to be about crime, at all, but reflects long held statements by the president on Democratic cities, and the general belief that their leadership, in fact, all Democrats were soft on crime; a belief that has roots from Richard Nixon who ran on a law and order platform and reached the heights of the George Floyd protests, that were tagged by violent hooligans who seized the opportunity for theft and mayhem; and, all of which played into the hands of Republicans who funneled the perception of Democratic leadership ignoring violent crime while they upheld trans rights and affirmative action for Blacks in employment and university admissions.

This is not to say that crime does not exist in many large American cities, it does, and tackling a complicated issue requires more than political posturing, and as The New York Times noted in a report, locking up criminals, addressing the root causes of crime has experts they consulted pointing “to an unclaimed middle ground for savvy politicians who want to acknowledge the problem, put aside the clash between facts and feelings and focus on what works.”

While Washington, DC has had a severe crime reduction for the most violent of crimes, an incident with a former DOGE staffer who was violently assaulted in an attempted car jacking, the time for the administration to act was now, and this they did, and in well publicized statements,Trump set up a test pilot to continue the actions of the guards to Democratically led cities especially, the bluest of the blues, Chicago, and set up a perfect storm to create the chaos that he began in his first term of office.

Crime and crime stats are not the point, but the intentions to harness the base of his support to see him as a strongman against lefty liberals who can’t control their cities is sure to shore up support in the upcoming midterms, where despite overall strength, the president is seeing his support dwindle; especially, among worried seniors and low income people, who for the most part wholeheartedly voted to put him back in office, and who might defect over potential losses for health coverage from The Big Beautiful Bill, and who in ruby red town halls saw Republican lawmakers booed, hissed, and shouted down by constituents, now discouraged by national leadership.

 

Whether this will bring them back from the brink of possible defection  is in question, but Trump who wants to keep the Dems from taking back the House  in the upcoming mid term elections needs these potential defectors whose lives for the most part, lie outside of large urban areas; and, if you add the brouhaha over the Epstein files, with subsequent protests from his base who feel deserted by his seeming abandonment of the Deep State, and the disastrous press meeting by Attorney General Pam Bondi, that she had not cleared with the White House, and her backtracking on the existence of a client list kept By Epstein that she previously said was on her desk later changing her statement to say she had lots of files on her desk, it’s obvious that Trump is worried about taking a drumming in the midterms.

It may be that some plans were being made for the National Guard to be called in to safeguard the public in Washington, the earlier play in June in Los Angeles was a starting point for a boost to the base, and to serve as a distraction from the Epstein furor, has made that effort a template for future actions.

Taking things further, on Monday, Secretary of Defense Pete Hesgeth ordered the use of side weapons for the guard in Washington, DC, but while this is a significant development, some residents, and media, have reported that they are also picking up trash, and painting over graffiti in the capital city, and earlier reports did say they the guard would be used as part of a beautification effort which has raised suspicion among cynics in Washington, of which are not in short supply in the city.

Some crime statisticians have attributed beautification efforts as a crime deterrent in cities like Baltimore, according to The New York Times.

As CNN reported, “President Donald Trump signed an executive order Monday tasking his secretary of defense, Pete Hegseth, with establishing “specialized units” in the National Guard that will be “specifically trained and equipped to deal with public order issues” — the clearest sign yet he intends to expand the US military’s role in domestic law enforcement activities across the country.”

Interestingly enough, guard units have been pulled from red states to patrol DC who voted overwhelmingly for Trump, but ironically have much higher crime rates in their respective states of West Virginia, South Carolina, Mississippi, Ohio, Louisiana and Tennessee.

“A US official told CNN on Monday that some troops will carry M4 rifles, as that is their primary weapon, whereas military police, for example, primarily use a M17 handgun. A Joint Task Force spokesperson said the troops are authorized to use their firearms for “personal protection” only, meaning self defense— and “not for policing.”

While this bolsters the president’s efforts, it also creates some confusion, of what they can do or not to do. It’s important to know that since the District of Columbia is not a state with only semi autonomous rule, Congress, and the president, can control much of the governance of the capital city.

“The DC National Guard is unique in that the president has the authority to activate them under Title 32, though that authority is typically delegated to the secretary of the Army. Otherwise, National Guard troops elsewhere in the country are under the control of their governors while on Title 32,” of the Posse Comitatus Act. 

Notably, Trump however did go over the head of California governor, Gavin Newsom to Los Angeles to protect federal buildings amidst protests against ICE deportations of undocumented persons, something that may happen in Chicago, as early as next week says Tom Homan, the designated Border Czar, to round up undocumented immigrants, creating a perfect storm for residents.

In a Monday press conference, Illinois Governor JB Pritzker, along with Chicago Mayor Brandon Johnson, said that the threat was a publicity stunt to distract Americans from Trump’s failed policies.

Ahead of the governor’s statements was this: “DC sets a bad example,” said “Rachel Van Landingham, a former Air Force judge advocate and current law professor at Southwestern Law School, told CNN on Monday,” adding, “It sets an example of normalizing this when nothing is normal about it, and DC is not representative of other states. … It would just be a whole new world for them to try a Washington, DC-type maneuver in Chicago or anywhere else that’s not Washington, DC, because Washington, DC, is so legally different than any other area.”

A question of stagecraft versus statecraft is on the minds of some observers, but a distinction may be hard to discern, say others. But, Pritzker did note in his opening remarks, “What President Trump is doing is unprecedented and unwarranted. It is illegal. It is unconstitutional. It is un-American.”

“No one from the White House or the executive branch has reached out to me or to the mayor. No one has reached out to our staffs. No effort has been made to coordinate or to ask for our assistance in identifying any actions that might be helpful to us. Local law enforcement has not been contacted. We have made no requests for federal intervention. None.”

Warming to the occasion, Pritzker added, “If this was really about fighting crime and making the streets safe, what possible justification could the White House have for planning such an exceptional action without any conversations or consultations with the governor, the mayor, or the police?

Let me answer that question: This is not about fighting crime. This is about Donald Trump searching for any justification to deploy the military in a blue city, in a blue state, to try and intimidate his political rivals.”

"This is about the president of the United States and his complicit lackey, Stephen Miller, searching for ways to lay the groundwork to circumvent our democracy, militarize our cities and end elections.”

July Jobs Report: A downward slide

With the release of the July Jobs Report from the US Labor Dept. on Friday there was an unexpected dip in the number of non-farm jobs for the country, a departure from what economists expected, and one that some have said was bound to happen with the economic uncertainty brought by the on again, off again tariffs from President Trump. In response, employers have been reluctant to hire new workers, but Trump has said, "The good news is that tariffs are bringing billions of dollars into the USA.”

In total, there were 73,000 jobs created, but one of the more revealing, and controversial, aspects of the report was the downward revisions for May, and June, a natural occurrence due to the collection period by Labor, specifically the Bureau of Labor and Statistics; but, these revisions were more severe than prior reports have shown: for June, 14,000, and for May 19,000, giving an overall picture of a declining, but not dismal, picture of the American jobs market.

“It’s hard to pull the trigger on hiring when you’re uncertain about where tariffs are going to land,” said Diane Swonk, chief economist at KPMG, to The New York Times.

Trump, who pegged much of his election campaign on increasing jobs for the US, was furious, and fired the BLS commissioner, saying without evidence that Dr. Erika McEntarfar, a Biden appointee, had rigged the numbers to make him look bad, and that she would be replaced for someone that would provide more accurate numbers.

Moving away from that controversial firing, this report was not entirely unexpected, some say, considering the uncertainty that has roiled both the domestic and the global financial communities, and the effect of tariffs on the American consumer, the main drivers of the economy. And, if there is a pull back on spending, then the consequences will be significant, but currently, with the average wage increasing by 0.3 percent, and reaching a total for the year of 3.9 percent, and $36.44 for July, it exceeds the rate of inflation of 2.8 percent, so consumer spending has not taken a nosedive.

The banner rate of unemployment was 4.2, a tad above the previous rate of 4.1, and the labor force participation rate was little changed from June, at 62.2 percent; and, while this is a closely watched figure by economists and legislators, future monitoring will be increased to make sure that there is no need of a fix, by either the Federal Reserve, or market enhancement tools.

What has become problematic is that the Trump administration has not made clear what the end goals are for tariffs, and for global markets, using his April calculations (which many economists question) could interrupt trade relations with some of America's closest allies, such as Canada, Mexico; not to mention the European Union, whose recent acquiescence has increased their tariffs from a previous low of 2.5 to 15 percent, but leaving a 50% tariff on steel and aluminum, components that are featured in many consumer goods for the US, not only cars, but appliances such as washing machines and refrigerators, to name but a few.

For those countries that have not negotiated with Trump they face even higher tariffs, up to 35 percent on August 7.

Switzerland, whose exports reach the US in luxury watches, chocolates, and components, such as the above, and who claimed a close trading relationship with them, was hit with a baffling 39 percent, slowing trade, and creating a probable black hole for later trade agreements; but, hitting the market for luxury goods among wealthy Americans.

Consistent with earlier reports the heavy hitters are: health care at 55,400 jobs, retail at 15,700, and leisure and hospitality at 5,000; but the demise of manufacturing and construction have continued, as both industries struggle with tariffs and supply chain issues, coupled with the high cost of building housing, in an underperforming area, 11,000 and 12,000 respectively.

Well known, but now firmly established is the loss of 12,000 federal jobs resulting from the earlier firings, orchestrated by presidential advisor Elon Musk, and the Department of Government Efficiency, which had been previously thought to have swelled the ranks of local and state governments, but with the revision are far less.

Reaction from economists has been swift, and Olivia Allen, senior economist at Parthenon, said, “After this report, it doesn’t look like a particularly healthy job market,”

Overall, job growth has not kept up with population growth in the US, and 80,000 to 100,000 are needed, noted Laura Williams, director of economic research for North America, at the jobs site Indeed.com, reported CNBC.  In fact, the country has only created 106,000 jobs since May, “a three month total barely enough to sustain the labor market.”

Cost of goods,specially groceries, were a deep concern for consumers when inflation was near 9 percent, and while it has come significantly down, there are still concerns, especially when Trump was running for his second term, and said, in effect, everything was going to be cheaper, a promise that he found difficult to keep, and admitted after 30 days in office, that it was harder than he thought.

Egg prices, that bugaboo in the run up to election day, have come down by 23.8 percent because of successful attempts to tame bird flu, and separate healthy chickens from sick ones; gasoline is up partially due to summer demand, but also varies according to the price of crude oil, and formularies used both in production and distribution, with an average per gallon price of $3.49, relatively tame by those standards.

Grocery prices do vary, by region, and retailer, but core inflation which strips out volatile gas and energy products is up from January to June by 0.8 percent; and, while some areas might not be affected, depending upon income, lower income families may be the most challenged, especially with the shortage of affordable housing, and congressional cuts to the Supplemental Nutrition Assistance Program, and taking into account that grocery prices are up 0.6 percent, according to the CPI report from BLS.

The Budget Lab at Yale University has predicted that with the Trump tariffs groceries will increase by 3.7 percent in a year, or two; and, 3.2 percent over the next 5 to 10 years.

The moves of the Federal Reserve in their recent meeting, has kept the interest rate of 5.33 percent, citing, once again, economic uncertainty of the Trump tariffs, much to the ire of the president as he has continued to excoriate Chair Jerome Powell, calling him on Truth Social, “Too Little, Too Late Jerome” and has wavered between name calling, or threatening to fire him; and, recently, attacking him for cost overruns on the Reserve building, conflating a five year old project with a current renovation; all designed in an effort to discredit him, since the Supreme Court has said that he cannot be fired.

Powell stated last Wednesday, “If you move too soon, you wind up maybe not getting inflation all the way fixed and you have to come back. That’s inefficient. If you move too late, you might do unnecessary damage to the labor market.”

There seems to be no predictable end in sight for the American economy, and employment stability; and, together with tight global markets makes for a very worrisome economic future, plus with politicization on the forefront, the risks for consumers are enormous.