Donald Trump’s renewed criticism of Federal Reserve Chair Jay Powell comes at a crucial time as recent data indicates signs of a weakening U.S. labor market. Following the release of employment figures that reveal a slower pace of job creation, Trump has called for a significant interest rate cut, suggesting that the Federal Reserve should reduce rates by “a full point.” This appeal follows a report by the Bureau of Labor Statistics (BLS) showing that the U.S. economy added 139,000 jobs in May, a slight decline from a revised figure of 147,000 in April. This downward adjustment continues a worrying trend, with the average number of jobs gained year-to-date now sitting at 124,000, markedly lower than the 168,000 average from 2024.
In a social media post on Truth Social, Trump did not shy away from expressing his dissatisfaction with Powell, whom he has previously referred to by the moniker “Too Late.” The former president stated that Powell’s decisions were costing the country significantly, particularly in terms of borrowing costs associated with U.S. debt. Trump’s comments come on the heels of a decision by the European Central Bank (ECB) to cut interest rates by a quarter point, completing a year-long reduction of borrowing costs. This has drawn attention to the contrasting monetary policies at play across the Atlantic, especially as the Federal Reserve has paused its rate-cutting strategy initiated in 2024. Economic experts are increasingly concerned that Trump’s trade policies, particularly tariffs, are contributing to inflationary pressures while simultaneously dampening growth prospects.
Last week, Trump and Powell met, with Trump expressing his discontent, stating that Powell was making a “mistake” by not moving to cut rates more aggressively. Despite the pressure, Powell has remained resolute, asserting that the Fed’s decisions are grounded in economic data rather than political influence. He emphasized the importance of relying on incoming information to guide policy measures.
The latest employment data somewhat contradicted market expectations, as the 139,000 job additions exceeded the anticipated 126,000 jobs forecasted by economists surveyed by Bloomberg. However, analysts caution against viewing these figures as purely positive. The unemployment rate remained unchanged at 4.2%, and the revisions to previous months’ figures suggest a troubling trajectory for job growth. Thomas Simons, an economist at investment bank Jefferies, remarked that the headlines might be misleading, stating, “Job growth has clearly shifted into a lower trajectory,” indicating potential weaknesses in the labor market.
Meanwhile, Marc Giannoni, chief U.S. economist at Barclays, foresees continued slowing economic growth over the remainder of the year, corroborating concerns raised by the Organization for Economic Cooperation and Development (OECD). This week, the OECD warned that the global economy could be entering its weakest growth phase since the COVID-19 pandemic, heavily influenced by ongoing trade tensions, particularly sparked by Trump’s tariff policies.
Amid these shifting economic conditions, the average hourly earnings saw a rise of 0.4%, bringing the annual increase to 3.9%. This positive wage growth may provide some relief for workers struggling with the effects of inflation. In response to the employment report, Treasury yields increased as market traders adjusted their expectations for future Fed rate cuts. Futures markets indicate a meager chance that the Fed may implement a rate reduction later in the year, though the prevailing consensus continues to support a central expectation of at least two rate cuts.
In the wake of the employment data release, U.S. stock markets responded positively, with the S&P 500 gaining 1% in morning trading in New York. This uptick comes despite a notable decline in government jobs, attributed to cost-cutting measures associated with the Department of Government Efficiency, a project formerly overseen by Elon Musk. This initiative has reportedly led to the loss of 59,000 federal jobs since January, reflecting a significant contraction in government employment. Still, the leisure and hospitality sectors have shown some resilience, with hiring in those areas helping to offset losses.
The relationship between Trump and Musk has taken a contentious turn this week, following Musk’s departure from his role and his criticism of Trump’s signature tax reforms, labeling them a “disgusting abomination” that would exacerbate national debt levels. This public fallout may have broader implications for their respective influences on the economy and public sentiment as they navigate these complex economic landscapes. As policy discussions continue, the interplay between labor market performance, Federal Reserve interest rates, and political pressures will remain a pivotal focus for analysts and investors alike, shaping the future trajectory of the U.S. economy.