In our \u201cWhat the Fed Should Do\u201d piece<\/a> yesterday, we quoted the economist Adam Posen, who agrees with Unhedged\u2019s line that weakening job creation does not reflect a collapse in underlying demand. Labour supply \u2014 demographics and immigration \u2014 explains a lot of the decline in new jobs. That labour market demand remains firm is reflected, for example, in a historically high prime-age participation rate.<\/p>\n But Posen also noted two trends in the jobs market that do worry him: rising unemployment rates among young people and African-Americans.<\/p>\n While the youth unemployment numbers are very seasonal, you can see that the recent summer highs among 20- 24-year-olds, with or without university degrees, are higher than those of the past several years. Posen\u2019s guess is that this is a structural issue rather than a function of a weaker economy. Perhaps AI is taking entry level jobs, or there is a mismatch between young peoples\u2019 qualifications and employers\u2019 needs, or changes to the student loan system have made a difference. But sectors that classically employ the young, such as restaurants and retailers, are not suddenly shedding jobs. \u201cI don\u2019t think any of us knows yet\u201d what the cause is, Posen says. <\/p>\n African-American unemployment, by contrast, has historically been a leading indicator in the jobs market. \u201cIt\u2019s not a perfect indicator and not an absolute role, but statistically [it has] power because, for economic reasons and for nasty reasons, when firms cut back it tends to be African-American employees who are the first ones out.\u201d\u00a0<\/p>\n Unhedged will be keeping a close eye on both trends.\u00a0<\/p>\n France (and the US)<\/p>\n French markets have had an eventful<\/a> couple of weeks. The prime minister, Fran\u00e7ois Bayrou, lost a vote of confidence last week, after his proposed budget, which would have made a dent in France\u2019s rising deficits, was met with outrage. He\u2019s the second premier of President Emmanuel Macron\u2019s shaky coalition to be ousted after trying to clean up the country\u2019s finances in the past year.<\/p>\n Macron replaced Bayrou with S\u00e9bastien Lecornu, a loyalist with a better reputation for compromise. But markets have got the picture<\/a>. France is in political deadlock and unable to reduce its soaring deficits. Yields on French 10-year bonds rose over the summer, and jumped at the start of this month. They fell when Bayrou was ousted, but they have been rising since:<\/p>\n \u201cCore\u201d France\u2019s bond yields are now in line with or higher than \u201cperipheral\u201d European issuers such as Italy, Greece and Spain, which many observers see as a fundamental shift:\u00a0<\/p>\n But this is a two-sided story<\/a>. France is facing new challenges, but the finances of Italy, Greece, Spain and Portugal have improved. Their politics have stabilised and their growth outlook is better, too. France\u2019s fiscal outlook has not become worse suddenly; it has been bad for some time. Its debt-to-GDP ratio has been rising steadily to meet \u201cperiphery\u201d countries\u2019 for more than a decade:<\/p>\n What has changed recently is the erosion of France\u2019s \u201cexorbitant privilege\u201d, says Davide Oneglia of TS Lombard:<\/p>\n France enjoyed an exorbitant privilege in the EU, as a very important member state, and as half of the Franco-German duo, which is credited with moving European growth and policy forward. Because of this, France got away with a lot of \u2018fiscal murder\u2019 over the years\u2009.\u2009.\u2009.\u2009Despite the continuous deterioration in its fiscal figures and its ever widening deficit, no one enforced any fiscal restraint measure on to France like they did with peripheral countries.\u00a0<\/p>\n The key causes, Oneglia says, have been last year\u2019s snap election and the country\u2019s inability to contemplate fiscal reform ever since. As Thierry Wizman at Macquarie Group put it to Unhedged, it is not France\u2019s debt levels but its \u201cgovernability\u201d \u2014 the ability to reach sensible compromises and decisions \u2014 that has come into question.<\/p>\n Talk of \u201cexorbitant privilege\u201d \u2014 a term coined by a French minister to describe the benefits of US dollar dominance \u2014 gets Unhedged thinking about the US\u2019s own fiscal\/political tangle. The two countries are in very different positions. The French debt picture is worse, its governing coalition more fragile, and the European Central Bank appears to be at the end of its cutting cycle. The US has political stability (if that\u2019s what you want to call it) until the midterms in November 2026, while its economy is weakening and the Fed is poised to cut rates further.<\/p>\n But there are similarities. US debt and deficits are getting worse, and neither political party shows any interest in fiscal discipline. The political divide is rancorous, and the Republican majorities in Congress are small. Yet the US\u2019s \u201cexorbitant privilege\u201d in bond markets is intact. Despite some steepening of the yield curve, US Treasury yields weathered the Lisa Cook mess fairly well. Long-term Treasury yields reversed course and fell last week. Recent Treasury auctions have been fine. And the stock market (unlike France\u2019s) marches ahead.<\/p>\n Will this last? The US has a unique status in global markets as the biggest, most open and most dynamic economy. But France shows that privileges can be lost when governability comes into doubt. Legal battles over the power of the presidency, deepening partisan division and the shadow of violence make it conceivable that the US might not have such a special status forever.\u00a0Politics matters to markets, eventually. <\/p>\n (Reiter)<\/p>\n One good read<\/p>\n Hybrids.<\/a><\/p>\n FT Unhedged podcast Can\u2019t get enough of Unhedged? Listen to our new podcast<\/a>, for a\u00a015-minute dive into the latest markets\u00a0news and financial\u00a0headlines, twice a week.\u00a0Catch up on past editions of the newsletter\u00a0here<\/a>.<\/p>\n Recommended newsletters for you<\/p>\n Due Diligence \u2014 Top stories from the world of corporate finance. 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