"Column" From calling for interest rate cuts to layoffs, Trump is shooting himself in the foot

(This article is authored by Jamie McGeever, a Reuters columnist, and the following content represents his personal views) Reuters, Orlando, Florida, August 4 - U.S. President Trump decided to fire a senior labor official following weak employment data, a decision that not only clearly sends an ominous signal of political interference in independent agencies but also represents a significant case of shooting oneself in the foot. Trump has been criticizing the Federal Reserve for the past six months, particularly Chairman Powell, accusing them of not cutting interest rates in a timely manner. These accusations peaked last Friday (before the July employment report was released), when Trump referred to Powell as a stubborn idiot on social media. The employment report data, especially the non-farm payroll numbers for May and June, were revised down by a total of 258,000, far below expectations. According to Goldman Sachs, this is the largest two-month revision outside of an economic recession defined by the National Bureau of Economic Research (NBER) since 1968 (assuming the economy is not currently in recession). This news triggered a violent reaction in the financial markets. Expectations for a Federal Reserve rate cut soared, the two-year U.S. Treasury yield recorded its largest drop in a year, and the dollar plummeted. According to pricing in the interest rate futures market, the market is almost certain that the Federal Reserve will cut rates by 25 basis points next month and will do so again in December. This is a stark contrast to the situation 48 hours earlier, when Powell's hawkish remarks at the press conference following the Federal Open Market Committee (FOMC) meeting raised the prospect of no rate cuts this year. Trump has repeatedly criticized Powell for being "too slow," and suddenly it seems he has more confidence. Powell's main reason for hesitating on rate cuts was his belief that the labor market remains "strong," but that is clearly not the case now. Trump could have responded by saying, "I was right, Powell was wrong." However, he chose to announce on Friday afternoon the firing of Bureau of Labor Statistics Director Erika McEntarfer, accusing her of falsifying employment data without providing any evidence. As a result, Trump not only missed the opportunity to emphasize that the market has accepted his view on the need for rate cuts but also united economists, analysts, and investors in condemning him, criticizing his blatant political interference. Many believe that such behavior is more in line with unstable developing countries and is at odds with the self-proclaimed "leader of the free world," the United States. Uncertainty Premium It is worth noting that significant or even historic revisions to employment data do not indicate flaws in data collection. Ernie Tedeschi, the economic director of the Yale University Budget Lab, stated on platform X, "The accuracy of the Bureau of Labor Statistics' initial estimates of non-farm employment is increasing, not decreasing." Moreover, the Bureau of Labor Statistics is not only responsible for employment data but also for compiling inflation data. In other words, the credibility of two of the most critical economic indicators for the United States and the world may now be questioned. Part of the so-called "American exceptionalism" is built on trust in independent institutions: people believe these agencies are led by professionals and are truly independent of politics, and that the data is trustworthy regardless of whether it is good or bad However, when the president unfoundedly accuses institutions like the Bureau of Labor Statistics and the Federal Reserve of having political motives and undermining his government, he is actually weakening people's confidence in the United States itself. Rebecca Patterson, a senior researcher at the Council on Foreign Relations, stated, "If this skepticism persists, investors will demand a higher risk premium to hold U.S. assets. While this is just one of many forces driving asset valuations, it will limit returns across the entire market." This turmoil comes as Federal Reserve Governor Adriana Kugler resigned on Friday, giving Trump the opportunity to nominate a third candidate to the seven-member board of the Federal Reserve, who could potentially succeed the chair position in the future, temporarily filling the vacancy until Powell's term ends in May next year. Whoever this person is, they may lean more towards dovish policies rather than hawkish ones. The policy uncertainty that had gradually faded since the "Liberation Day" tariff turmoil on April 2 has now become a focal point for investors once again