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July Employment Reports & More Tariffs -5

15:57 01-Aug-25

FOMC Governor Kugler just gave one week notice.  This was perhaps foreshadowed by her being absent from the recent meeting, and it is likely to shift rate expectation toward a cut, since she has voted with majority and is generally seen as in line with Powell's data-driven stance.  Together with everything else here, FedWatch now shows a dramatic shift to an over 90% chance of a quarter point cut at the September FOMC meeting.

This morning, FOMC members Waller and Bowman issued statement explaining their dissents.  This is common practice, but both note many of the same negative factors for the jobs market that I do.  As already noted, Waller is seen as auditioning for the Chair.  He goes so far as to say that:

If we do get significant upside surprises to inflation and employment, we can pause.

I've long been on record as warning that pausing in the face of an initial uptick in inflation, which we're already seeing, contrary to the tone of these statements, could lead to the disastrous Volcker scenario that I began warning about over 3 years ago.

As for tariffs, I reiterate that they are merely a response to underlying economic problems which I first anticipated coming to head by this point almost seven years ago.

On 8/1/25 09:48, CrowdWisers Administration wrote:

The BLS employment reports for July came in well below triple digit estimates at +73K jobs, and unemployment ticked up a tenth to 4.2% as expected.  Wages were up 0.3% when they were only forecast to rise by a tenth or two.  The Participation Rate & Employment Population Ratio both ticked down a tenth.

I've been anticipating gradual deterioration of the job market, and though I doubt this will be enough to shake defiant pundits, this is another data point in support of my view.  I've labeled the Fed willfully ignorant when it comes to housing, and still expect the employment to remain stagnant for as long as mortgage rates remain unusable.  Yet if the Fed cuts significantly, as it signaled it would do in response to deterioration in the job market, I expect inflation to do even worse harm.  This probably isn't enough for such action, but again, we'll see what we hear at Jackson Hole in three weeks.

Unfortunately, it will be difficult to separate the market's long term reaction to jobs data from the knee jerk reaction to the latest tariff news, which raises the rates on 26 countries with whom America has trade deficits.  The most important of those not already discussed are Taiwan and Vietnam, both at 20%.  I note that most of these are planned to go into effect on August 7th, even though Trump had said there would be no further delays.  We'll see if any last minute deals materialize in the interim.

Most important of all is Canada, which is particularly exposed, and got separate and worse treatment at 35%.  I expect that some deal will eventually be reached, but think Carney would be smart to wait for broader economic effects to show up.

One other noteworthy point is that, unlike past tariff reactions, the dollar is mildly but broadly lower this morning.  I will be watching to see if that trend continues, or if it is merely a more ephemeral sell the news move.  In the former case, I would expect the downward market reaction to moderate, but also be more sustained.

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