and the world’s most powerful central bank sharpens the debate over whether interest rates will be lowered at all this month after hiring in June smashed expectations, which eased pressure on the Fed to cut rates at its July 30-31 meeting.
With Powell scheduled to give a regular round of testimony to Congress next week, Trump took aim at the Fed twice within a day. Growth “would be like a rocket ship” if the Fed eased, he told reporters at the White House earlier Friday. Trump has repeatedly criticised the Fed for raising rates in 2018 and failing to reverse course. He discussed firing Powell and asked White House lawyers this year to explore his options for removing the Fed chairman, according to people familiar with the matter. Last month, he denied he’d threatened to demote Powell but said he’d “be able to do that if I wanted.”
Friday’s nonfarm payrolls report for June shifted the debate from how much to cut interest rates later this month to whether to move at all.
Yields on two-year U.S. Treasuries previously jumped to 1.87% from 1.76%, reflecting reduced odds of the Fed aggressively reducing borrowing costs in the near term. Fed funds futures, which had been indicating some possibility of a half-point rate cut in July before the Labor Department’s data, are now pricing a quarter-point reduction this month, and at one point on Friday even showed that outcome was less than 100% certain.
Powell, who has said uncertainties in the US outlook could call for lower rates, will give his read on the job market in two days of semiannual testimony before Congress. The Federal Open Market Committee at the end of July will discuss whether the economy needs an “insurance cut” amid a slowing global economy, trade frictions and low inflation.
Powell, whom Trump chose to replace Janet Yellen as Fed chair in 2018, isn’t the only central banker facing political pressure.
Turkish President Recep Tayyip Erdogan removed that country’s central bank governor, who kept interest rates on hold in June, according to a presidential decree published Saturday. The official, Murat Cetinkaya, was said to have refused an informal request to resign.
Payrolls climbed 224,000, compared with the median economist estimate for 160,000, after a relatively weak 72,000 advance the prior month, according to the Labor Department figures. The jobless rate ticked up to 3.7% from a half-century low of 3.6% while average hourly earnings increased 3.1% from a year earlier, slightly less than projected.
In a report after the employment release, Goldman Sachs Group Inc. economists led by Jan Hatzius said recent Fed speeches and interviews suggest the central bank will go ahead with a cut in July.
“We continue to see rate cuts as the most likely outcome,’’ with 60% odds of a July quarter-point cut, 15% odds of a half-point reduction, and 25% odds of no policy change.
“The July meeting is probably a closer call than what the markets are implying,” said Neil Dutta, head of economics at Renaissance Macro Research. “If you were thinking they would cut rates three times this year, the momentum is so strong in July that that is not going to happen.”
In a separate tweet Saturday, Trump said the U.S. is the “envy of the World” after all three U.S. stock indexes closed at record highs before the July 4 holiday. On the eve of his formal re-election announcement, Trump warned of an epic stock market crash if he was not returned to office in 2020.