Why You Should Be Worried About the US Labour Market

Every first Friday of the month is an important day for economists and investors. It is the day when the latest jobs data is released for the previous month.

Today was a grim day for Trump. Just 22,000 jobs were added in August, showing the effects of the tariffs on the US economy. Tariff-sensitive industries such as car manufacturers that use aluminium and other metals are having to either relocate production or cut labour force to offset tariff costs. This shows how damaging tariffs are to the economy, and this is only the beginning.

Why jobs data matters

Analysts use the latest job data (NFP – nonfarm payroll) are a gauge to understand whether the Federal Reserve will cut rates. Given this damning number, it is highly likely that the Federal Reserve will cut rates, but by how much is the question.

An aggressive rate cut would mean cutting the rate by more than 1%. This allows businesses to recover from inflation caused by tariffs and offset loans at a lower rate. Furthermore, it may encourage households to start spending, but given low consumer confidence and consumers’ belief in a lack of income prospects (https://www.conference-board.org/topics/consumer-confidence/), it would be optimistic to think of this.

A dovish rate cut would mean cutting the rate by less than 1%. This is a less likely scenario and would be alarming for analysts. With cost-push inflation rising, rates would need to be cut at a faster rate to dampen rising prices. Therefore, this scenario has the lowest prospects.

The politics behind the Fed

Recently, the Federal Reserve, especially Jay Powell, acknowledged the costs of tariffs on the US economy, stating the damage that they’ve done. Consequently, this didn’t sit well with Trump, resulting in threatening Powell of a potential job.

It is important to know who will come into the reign of the Federal Reserve. As written earlier, independence is important within the central bank since it limits political pressures. A Trump loyalist will certainly bring chaos, risking the institution itself.

What you should watch

Therefore, the two things to look out for as we approach Christmas are: what the rate cuts look like and who will come into the reign of the Federal Reserve.

The answers could decide the future not only for the US economy for the global economy as well.