Between a strong jobs report Friday that adds to the case for U.S. interest-rate hikes and a novel threat from President Donald Trump to stop trade with some countries unless the Federal Reserve cuts rates, Fed Chairman Kevin Warsh faces a squeeze: risk presidential ire by tightening monetary policy at the central bank\u2019s meeting in two weeks, or skip it and risk a hit to credibility after his \u2060own recent hawkish rhetoric.<\/p>\n
The \u200bdecision, ahead of November elections in which Trump\u2019s Republican party is defending slim majorities in Congress, will likely hinge on whether next week\u2019s inflation reports show price pressures continue a recent cooling trend, or stay too hot for comfort.<\/p>\n
Inflation has run above the Fed\u2019s 2% target for 5-1\/2 years, and last Friday Warsh said he needs confidence it is moving back to target \u201cclearly and at sufficient speed. Otherwise, we have work to do,\u201d a message widely seen as cracking the door open to a rate hike at the Fed\u2019s September 15 to 16 meeting.<\/p>\n
\u201cThe Fed Board, \u200bwith its great new leader, must get smart – BE PATRIOTS for a change,\u201d Trump said in a Truth Social post Friday \u200cshortly after the Bureau of Labor Statistics reported that employers added nearly three times as many jobs in August as economists had expected.<\/p>\n
\u201cHigh interest rates put the U.S.A. at a very unfair disadvantage, and I won\u2019t allow that to happen!\u201d said Trump, who has repeatedly demanded that the Fed cut rates but has refrained from excoriating Warsh personally for not doing so, as he did with Warsh\u2019s predecessor Jerome Powell.<\/p>\n
\u201cA STRONG COUNTRY MEANS A LOWER INTEREST RATE – IT\u2019S A BETTER CREDIT\u2026Very simple!\u201d he said in language running counter to standard economic thinking, where a healthy economy coupled with high inflation should mean tighter, not looser, monetary policy.<\/p>\n
On Friday, he aimed his fire \u200cat U.S. trading partners, \u200bon which he has levied sharply higher tariffs that have \u200ccontributed to price pressures more recently exacerbated by an escalation in the U.S.-Iran conflict and a boom in AI-related investment demand. Both the latter have pushed up longer-term U.S. Treasury yields, making government borrowing \u200bmore expensive and exacerbating an affordability crisis for U.S. households that is eroding Trump\u2019s political support.<\/p>\n
\u201cWe should have the \u2060LOWEST RATE of any country in the World … LOWER THE RATE OR I\u2019LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,\u201d Trump said. Such \u2060a trade embargo would be the type of action that could send the global economy into a slump and cause a recession in the U.S.<\/p>\n
Trump\u2019s demands notwithstanding, focus has sharpened on an interest-rate hike. The latest jobs report showed nonfarm payrolls surged \u200bby 162,000 jobs last month and workers flooded back into the labor force.<\/p>\n
Labor force participation rose to 61.6%, driven by a 300,000 jump in the number of people moving from the sidelines directly into a job, and a drop in the number of workers or job seekers leaving the labor market.<\/p>\n
The increase in the labor pool kept the unemployment rate steady at 4.1% for arguably healthy reasons — more people working or looking for work after a period of decline attributed to tougher immigration rules and enforcement. Black unemployment, which typically runs higher than the overall rate, dropped to 6% in August after spiking to as high as 8% last fall.<\/p>\n
Growth in hourly earnings, at \u20603.1%, by contrast stayed in a range consistent with the Fed\u2019s 2% inflation target.<\/p>\n
Fed officials have in recent months characterized the labor market as solid but with wage growth not seen adding to inflation pressures.<\/p>\n
While strong, this latest jobs report may not change that overall conclusion, putting the spotlight on next Friday\u2019s consumer price data to potentially seal the case for a rate hike or, if it comes in weak, boost the argument to remain on hold.<\/p>\n
\u201cTrump\u2019s renewed pressure on the Fed to cut does nonetheless complicate things even further for Warsh ahead of the final inflation data into the September meeting,\u201d Evercore ISI\u2019s Krishna Guha said. \u201cWarsh was notably hawkish at Jackson Hole, at a minimum shifting the onus of proof to demand the data to provide additional reason not to raise rates.\u201d<\/p>\n
Traders \u2060had ratcheted up bets on a September rate hike last week after Warsh\u2019s remarks, though this week several of \u200bhis colleagues sounded more comfortable with staying on hold.<\/p>\n
Fed Governor Christopher Waller on Thursday told Reuters NEXT that he would support keeping rates steady in the 3.50%-3.75% range if next week\u2019s batch of inflation data, \u2060which also includes the producer price index, shows price pressures are continuing to moderate. Friday\u2019s jobs report would likely be \u201csatisfactory,\u201d he said, signaling it would have little impact on his own view of the proper rate path.<\/p>\n
\u201cEven the most committed dove would struggle to \u200cfind anything in the August employment report to justify keeping interest rates unchanged,\u201d Capital Economics analysts wrote. \u201cThe prospect for a rate hike this month still depends much more on the August CPI and PPI \u200bdata next week, but the strength in the labor market means we\u2019ll only need to see data that are consistent with a moderately above-target-consistent gain in the core PCE deflator to shift our forecast back to a September hike.\u201d<\/p>\n
After the jobs report traders on Friday nudged up bets on Fed rate hikes, with short-term interest-rate futures prices now implying about a 62% chance seen of an increase this month, up from about 55% before the report.<\/p>\n
\u201cWhile Fed officials have communicated that they are squarely focused on the inflation readings, today\u2019s strong employment report \u200balso provides additional support for rate hikes this year,\u201d wrote Nationwide Chief Economist Kathy Bostjancic. \u201cWe now see two, 25 basis-point rate hikes by year-end, lifting the fed funds rate to 4\u20134.25%.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Between a strong jobs report Friday that adds to the case for U.S. interest-rate hikes and a novel…\n","protected":false},"author":2,"featured_media":883522,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-883521","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/883521","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=883521"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/883521\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/883522"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=883521"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=883521"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=883521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}