Trump, Waller, Bowman, and Dutta’s Role in the July Jobs Report
The July employment report was disappointing for American workers, the economy, and Jerome Powell’s Federal Reserve.
There’s a notable connection involving Donald Trump, who opposed Fed Governors Christopher Waller and Michelle Bowman in favor of economist Neil Dutta.
Employment figures showed an increase of just over 73,000, but revisions over the past few months indicated a staggering loss of 258,000 jobs, reinforcing critics who have long asserted that the Fed’s stringent policies have harmed the labor market. It’s hard to see how anyone could view Jerome Powell’s take on the labor market as anything but misguided.
Trump has consistently argued that the Federal Reserve’s policies stifle growth, especially as his second term aimed at reviving the economy. Now he seems to have evidence supporting his claims. Waller and Bowman had warned about the labor market’s weakening trend, while many analysts on Wall Street noticed signs of softening a while back.
Trade Policies and Job Numbers
Meanwhile, some vocal opponents of Trump’s trade policies have suggested that tariffs are responsible for today’s disappointing job numbers. However, that argument falls apart upon closer inspection. Industries like construction, manufacturing, and professional services respond primarily to tight monetary policies rather than trade tensions.
If one were to look for evidence of a decline triggered by tariffs, they would come up empty. Agricultural jobs have risen for three months straight, and employment in transportation and warehousing has also increased. Retail, often seen as an early indicator, added 3,800 jobs—not precisely the signature of a trade war.
As for foreign retaliation? It hasn’t materialized. In classic trade disputes, job losses typically arise from other countries imposing restrictions on U.S. exports, thus reducing American jobs. Yet, no such responses have occurred from the likes of the EU or Japan, who continue to engage in trade agreements. There’s no trade war here—just a new coalition of trading partners aiming to recalibrate the global economy.
Accountability for the Fed’s Policies
So if tariffs aren’t the culprit, then who is? Jerome Powell and the Federal Reserve. More specifically, Powell’s stubbornness in acknowledging that high interest rates are negatively impacting the labor market. The weaknesses in the current jobs report aren’t random—they align perfectly with what financial theories and past studies have predicted.
Employment in construction is almost stagnant, manufacturing jobs have been declining for the third month in a row, and temporary help services—often a bellwether for labor market shifts—have dipped again. These aren’t just anomalies; they are clear signs of a strained economy.
Research Insights and Their Relevance
Research, both peer-reviewed and from Fed staff, along with years of macroeconomic patterns—from shock therapy to fiscal normalization—tell a common story. Housing and manufacturing jobs are the first to suffer when interest rates rise, stemming from reduced funding, planning, and demand for durable goods.
Theoretical frameworks elucidate these mechanics. The economic model known as dynamic stochastic general equilibrium (DSGE), used by the Fed to shape policy, shows that rising rates diminish demand for capital goods and ramp up investment costs. Added friction and credit limitations exacerbate the damage. Employment declines are not random; they typically fall along expected lines: construction, manufacturing, and companies that adjust hiring in accordance with growth forecasts.
In contrast, more insulated sectors such as healthcare, education, and government continue to grow, masking the underlying turmoil.
Policymakers have understood this for some time. I mean, I thought they would have learned from past mistakes. They were warned to expect weakness in economic sectors sensitive to profit during tightening periods. However, they seemed to overlook key indicators while fixating on their import obligations.
This month’s jobs report aligns perfectly with historical trends. It doesn’t blame trade issues; it points toward tightening monetary policy. And it serves as a warning that pain is no longer just a theoretical concern.
Waller and Bowman’s Evidence
This week’s data reinforces the views of federal governors Christopher Waller and Michelle Bowman, both of whom suggested prior to the report that it might be time to cut interest rates.
Waller pushed back against the Fed’s decision to maintain rates in July, noting that “Private sector pay growth is nearly at a standstill.” In a speech from July 17, he remarked, “We shouldn’t wait for the labor market to worsen before we make cuts.” He laid out an empirical case, noting that GDP growth was well below trend, inflation was softening except for tariff-impacted goods, and unemployment was creeping up. By August 1, Waller cautioned that shifts in the labor market can occur rapidly.
Bowman echoed Waller’s sentiments, highlighting indicators of a “less dynamic labor market” and other signs of potential economic frailty. She pointed to a declining employment-to-population ratio and increased credit stress among lower-income households.
Neither advocated a rapid series of cuts; rather, they suggested a careful approach towards a neutral stance. Their concerns have been validated—they anticipated the slowdown. They were interpreting the data accurately.
Dutta’s Perspective
Enter Neil Dutta from Renaissance Macro, who has been sounding the alarm about a weakened economy since Trump took office, contrary to the reassuring narratives spun by many economists. Dutta pointed out a series of revisions that suggested slowing growth, particularly in profit-sensitive areas, and questioned the reliability of previous employment data.
In late July, he observed that the three-month average in private pay growth was approaching levels typically seen before Fed rate cuts. He drew attention to decelerating wage growth, a narrowing scope of employment benefits, and an uptick in part-time work. Again and again, he stressed that, given the underlying data, the Fed’s stance was excessively stringent.
Dutta’s approach set him apart. He insisted that the Fed was misinterpreting key indicators. While others focused on surface-level metrics like job growth and wage increases, he drilled down into the finer details—temporary gains, production times, and revisions—treating the evidence like a detective solving a case. His insights allowed him to predict downturns before they affected top-line numbers.
This morning’s revisions showed a loss of over 250,000 jobs since last month, making Dutta look like an astute forecaster. As President Trump seeks to fill vacant spots on the Federal Reserve Board, noting the resignation of Governor Adriana Kugler, he might consider bringing Dutta to the White House.
Dutta’s presence could inject much-needed intellectual rigor and empirical discipline into the board, which may have been bogged down by outdated consensus and worn-out perspectives on trade policy. He approaches the situation not with a political axe to grind but with a data-driven mentality—a crucial asset for the Fed at this moment. His insights are profound, his forecasts are being tested, and his reliability is on the rise, while Powell’s stature appears to be waning.
If Powell were to step down when his term ends (which he should), the administration would then have a chance to overhaul its monetary policy entirely. Joe Lavorgna and Stephen Milan, both knowledgeable figures within the current administration, could prove to be solid options. Each has previously raised alarms about the perils of overly stringent policies and brings invaluable real-world experience alongside a commitment to effective economic practices.
Trump spotted this early. Now, it’s time for him to elevate those who share his vision. The Fed missed the mark this time around. Conventional wisdom from academia and Wall Street overlooked crucial signals while being preoccupied with unfounded fears of tariff-related inflation. But Trump advocated for a slowdown, backed by a few bold and independent thinkers—Waller, Bowman, Dutta. As the White House reasserts control over economic policies, it’s essential to recognize and reward insight and accountability. The Trump economy needs those who will stay vigilant and act decisively based on clear evidence.
