Trump to sue Powell? BLS to cancel the monthly NFP?

European markets are following their Asian counterparts higher in early trade, with yesterday’s US core inflation uptick doing little to dampen spirits as highlighted by the record highs seen in the S&P 500 and Nasdaq. The DAX and eurostoxx are pushing sharply higher in early trade, with positive momentum gathering pace as traders celebrate the trade clarity obtained despite the 15% tariff implemented against EU exporters. Notably, the collapse seen in the German ZEW survey highlights that despite the booming stock market, traders are increasingly pessimistic about the direction the economy is heading. Nonetheless, as the Russians have seen, the involvement in conflict can often prop up the economic outlook, forcing higher spending and activity. With Trump now pressing Japan to increase defence spending, we are seeing military expenditure provide the backbone of fresh fiscal expansion plans that should provide the basis for strong global output going forward.

Yesterday’s US inflation report provided a somewhat perverse situation where markets become increasingly confident in Fed easing despite a five-month high for the core CPI metric (3.1%). It is unlikely that we will see that core CPI figure get anywhere near the 2% Fed target this year, but markets are confident that the Fed will overlook the data to slash rates in the months to come. Market pricing for a rate cut at each of the remaining three meetings of 2025 have tipped above the 50% mark, meaning that it is now the base case scenario that we see rates at least 75bp lower by year-end. No wonder markets are in buoyant mood, with a goldilocks scenario developing where the Fed will cut rates based on poor jobs data that could be lagging in nature given the trade uncertainty that has largely been clarified.

Trump continues to wreak havoc on the status quo, with the President threatening to sue Powell as he pressures the chair to cut rates immediately. The ability to sue Powell remains questionable, but the fact is that the jobs report has at least provided the FOMC with a justification of drastic action should they need it. That could include a 50bp cut, or a cut prior to the September meeting. Meanwhile, Trump’s new BLS chief has suggested shifting the monthly jobs report to a quarterly format in a bid to end the kind of huge data revisions seen of late. Nonetheless, this appears to be a case of Trump simply hiding the data that he does not like, providing the President with the ability to simply talk up the economy without the pesky facts. With the Fed having to take policy decisions based on the data, would the decision to remove one of the most important economic surveys mean that Fed decision-making becomes even more lagging in nature?