The recent employment report is a letdown, revealing that private sector jobs have stagnated over the last three months. In fact, we’ve seen a conservative decline in manufacturing jobs over the past four months. Some might say it’s a Stall Speed Job Report, echoing Chris Waller’s sentiments, but it doesn’t quite indicate a recession.
On a brighter note, investment in capital goods and factory orders is thriving. Plus, in a few months, middle-income workers might benefit from tips, overtime, and the advantages of tax cuts that affect Social Security benefits. It seems that the current and future economies are stronger than many realize, or at least that’s my take.
Of course, President Trump had a quick, straightforward reaction. He pointed out that Jerome ‘too late’ Powell should have lowered interest rates much earlier. As he typically puts it, “It’s too late!” Trump anticipates that Powell will reduce the Fed’s target rate to 3% from the current 4.5% by year’s end. Meanwhile, with CEA Chairman Stephen Miran stepping away to temporarily join the Federal Reserve committee, the narrative might shift, potentially summarized by the Wall Street Journal as “Trump is on his acquisition.” Additionally, the Journal reported that the DOJ has launched a criminal investigation involving Fed’s member Lisa Cook, which has led President Trump to dismiss her over ongoing issues of mortgage fraud.
The overall situation suggests that by the year’s end, we could see four Trump appointees on the seven-member Federal Reserve, marking a significant shift. Treasury Secretary Scott Bessent discussed these changes in a piece in the Wall Street Journal, emphasizing that the Fed’s monetary policy experiments over the past fifteen years have largely missed the mark. According to him, they’ve consistently miscalculated inflation trends, overstepped their boundaries, and exacerbated major budget deficits.
In this context, Powell and his team may have jeopardized the Fed’s independence and credibility. Interestingly, Bessent didn’t address the dollar’s role in his analysis.
So, where does King Dollar fit into all this? Technically, it’s a representation from the Treasury, led by Bessent, but ultimately, the Fed controls the dollar’s supply. I believe maintaining a stable and reliable King Dollar is crucial for achieving price stability, which, in turn, is essential for fostering economic growth and reducing unemployment.
Yet, against a basket of currencies like the CRB Commodity Index, the dollar’s value has plummeted by roughly 35%. When compared to gold, it has dropped by over 125%. Such trends are unsustainable if we want to keep the dollar as the global reserve currency. While Bessent discusses the Fed’s balance sheet’s role in managing monetary supply, he doesn’t seem to touch on the currency itself.
One can only hope that this oversight will change with new leadership at the central bank.
