Let's talk about Trump, good jobs reports, and ignorance….

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1:02So today, we're going to talk about Trump, good jobs reports and ignorance. Trump recently implied that his good jobs report meant the federal reserve should lower interest rates like the old days because it made the economy strong. I mentioned that wasn't always the case. That elicited some strong reactions. And it's worth explaining why the jobs report is actually the opposite of what Trump needed if he wanted rate cuts from the Fed. Quote. Bell, your ignorance is showing or your TDS. Please explain to me how a good jobs report would be an argument for anything other than a rate cut. But I got you. A really strong jobs report sounds like unambiguously good news. More jobs, low unemployment, rising wages. Those are good things. So why does Wall Street sometimes react to a great jobs report like somebody just announced there's a tiger loose in the building?

2:09The suck market is not the economy. A surprisingly strong labor market can change what investors think the federal reserve is going to do with interest rates. To understand why, you have to understand the Fed's dual mandate. Congress has essentially given the federal reserve two major economic jobs. Promote maximum employment and maintain stable prices. The Fed currently defines price stability as inflation averaging about 2% over the long run. Maximum employment is a little fuzzier because there isn't some magic unemployment rate the Fed is required to hit. Instead, officials look at unemployment, job creation, wages, labor force participation, job openings, and a bunch of other indicators to judge the overall health of the labor market. And interest rates are one of the Fed's primary tools for balancing the often competing goals of the dual mandate.

3:17When the economy is struggling, unemployment is rising and inflation is under control. The Fed will generally lower interest rates. Lower rates make borrowing cheaper. Mortgages, business loans, car loans, and other forms of credit tend to become less expensive. That encourages people to borrow and spend and makes it easier for businesses to invest, expand and hire workers. Basically, lower rates are the Fed stepping on the economic accelerator. When inflation is too high or the economy appears to be generating more demand, then can be sustained without renewed inflationary pressure. The Fed can do the opposite and raise interest rates. Higher borrowing costs tend to discourage some spending and investing, reducing demand throughout the economy, and over time, helping bring inflation under control.

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5:18And this is where the jobs report comes in. Suppose economists expect the economy to add 56,000 jobs. But the report comes back at 162,000. Actual numbers, by the way. Unemployment remains very low. Hiring is widespread and wages are rising. That doesn't mean the Fed immediately says, Too many people have jobs, raise rates. Strong employment by itself is not something the Fed is trying to prevent. In fact, maximum employment is literally half of its mandate. The Fed's current framework explicitly recognizes that employment can sometimes exceed estimates of its maximum sustainable level without necessarily threatening price stability. The issue is what that jobs report tells the Fed about the broader economy. If inflation is already running too high, as it is thanks to Trump's trade policies and more,

6:20unexpectedly strong hiring can suggest that demand remains stronger than policy makers expected. Consumers still have income. Businesses are still hiring. The economy may not be slowing very much despite higher borrowing costs. That can make the Fed worry that inflation will remain elevated, or start accelerating again. Especially if something like diesel is at an all-time high. Unless monetary policy stays restrictive. So, a strong jobs report can cause the Fed to delay interest rate cuts, keep rates higher for longer, or if inflation risks become serious enough, consider raising rates. The reverse can happen with a terrible jobs report. If hiring collapses, an unemployment begins climbing rapidly, while inflation is moving toward the Fed's target. The employment side of the dual mandate suddenly becomes much more important.

7:24The Fed may respond by cutting rates to stimulate economic activity and reduce the risk of recession. So, when you hear someone say the jobs report was too good, so the Fed might raise rates? The Fed isn't actually rooting for unemployment. What they really mean is that the report suggests the economy may be stronger than expected, which can change the balance between the Fed's two responsibilities. Strong jobs aren't the problem. Persistent inflation is. Trumpian policies are. He created the problem he's whining about. It's not my ignorance that caused the misunderstanding. It's trumps. He should read his briefings. Anyway, it's just a thought. We all have a good day.

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