Katie Martin
Little bit of a summer break there, listeners, but we’re getting back in the groove and so much for a quiet August. There’s loads going on with the most important institutions in US and indeed, global finance. So to recap this month, that guy Donald Trump fired the woman in charge of jobs data because, well, he didn’t like the jobs data, and replaced her with a loyalist.
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And for a job at the US central bank he’s nominated a pretty controversial adviser, Stephen Miran, who has argued for root and branch reform of the whole institution. Markets are weirdly relaxed about this, but today on the show, we’re gonna unpack what it all means and whether we should all be freaking out.
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist here at the FT in London. Still got a bit of a tan from my sunny holidays, and I’m joined in the studio by a man who lives and breathes this stuff. He’s a data nerd’s data nerd, a central banking wonk, Chris Giles. Chris, what a time to be alive, hey.
Chris Giles
What a time to be at work in August. We’ve got loads to talk about.
Katie Martin
In the good old days, I used to spend August like going for boozy lunches and filing my nails.
Chris Giles
I know. It is either some sort of financial crisis or a very thin market, so they managed to create a financial crisis . . .
Katie Martin
Out of nothing.
Chris Giles
Out of nothing, or actually quite important news. And that’s the latter this time.
Katie Martin
Yeah, so quite important news. We’ve got a massive test of US institutions going on right now, and it’s not obvious to me that the system is passing the test, which is a bit scary. So lots going on. Let’s do it in vaguely chronological order ’cause it all also happened very quickly.
The Bureau of Labor Statistics, they publish the most important piece of data in the global economic data calendar, which is non-farm payrolls. So . . .
Chris Giles
Jobs.
Katie Martin
It’s the jobs data. People call it payrolls, non-farm payrolls. Why do people care about farm payrolls? They don’t. And these numbers really matter ’cause the Fed pays attention. So the central bank pays attention to employment as well as just to inflation. So it’s got this dual mandate. So the jobs numbers are incredibly important. We got the numbers through for July, and they undershot expectations.
Chris Giles
Well, but not by a huge amount. That would not have created any sort of stink whatsoever on their own.
Katie Martin
So payrolls added 73,000 jobs for July. A bit of a miss, but not a big one. But there were some huge downward revisions for the previous data for May and June. All told, it was 258,000 jobs that got wiped from the record. How does that happen? That sounds bad.
Chris Giles
It does sound bad. And it’s been pretty common with Bureau of Labor Statistics data recently. Look, revisions are normal. We shouldn’t get excited by revisions.
Katie Martin
Especially payrolls numbers. They get revised over and over.
Chris Giles
People look too much at the most recent data and not enough at the trend. And financial markets are very guilty of that. (Katie laughs) But they didn’t this time and they looked more at these big revisions than the latest data.
And they were big. Let’s just put them in context. Outside a recession these were the biggest two-month revisions since 1968. So that’s quite a convoluted statistic that gets rid of lots of other quite big revisions. But it does show that as two months next to each other, consecutive revisions go, these were pretty large.
Katie Martin
Lots of different types of data that rely on surveys, you know, particularly around labour market data. It’s the same in the UK to an extent, right? There are problems with how globally authorities gather these numbers, but Donald Trump is not really interested in those kinds of intricacies, right? He was just . . . He looked at this revision. He said, I don’t like this. I’m going to fire Erika McEntarfer, who’s the woman who runs the BLS. And he did.
Chris Giles
So he did it. And he said, it’s because it doesn’t show the Trump economy is booming like he knows it is. I mean, forget the statistics. He knows it’s booming. And if the statistics don’t show that, they must be wrong, not him.
Katie Martin
This is all quite weird ’cause all things being equal if the economy is not adding as many jobs as you previously thought, then that would be a recipe for cutting interest rates, which is what he wants.
Chris Giles
But this time round, the real risk is that what we are seeing in the US labour market is the consequence of his policies, particularly on immigration, so it’s not adding jobs because there are fewer workers seeking jobs and not because unemployment’s rising.
In fact, the unemployment data which came out on the same day, it was a little bit . . . But it’s at levels now where it’s been for the last seven or eight months, give or take little shifts up and down 4.2 per cent. That’s pretty much full employment, or maximum employment as the Fed likes to call it.
So it feels it’s meeting its mandate on employment. So if you meet your mandate on employment, you’re not creating jobs. That just means the US economy has become less dynamic than it was and it’s not necessarily a reason for cutting interest rates.
Katie Martin
Now, so Trump is saying, he’s alleging, without any proof that I’m aware of, that the BLS has been politically massaging the numbers in favour of the Democrats.
Chris Giles
It’s nonsense. Let’s not try and say there’s any correct analysis of data in this. It’s just nonsense. I would normally use a different word but we are on a podcast.
Katie Martin
But this is a family show.
Chris Giles
And this is a family show. So he’s not wrong or the people, his supporters, are not wrong when they say that the non-farm payroll numbers have a bit of a revisions problem at the moment. And they all go in one direction. So since 2023, they’ve all been revisions downwards. But that was under Joe Biden’s administration, and it’s under his administration. Nothing to do with politics, but it does mean that he’s entirely wrong about the politicisation. They’re not entirely wrong that the data isn’t of very high quality.
Katie Martin
Yes, but you know that is all a bit of a red herring, isn’t it? The point is the president has quite thin skin in this regard. He wants numbers that make him look great. This is supposed to be a non-partisan exercise of gathering and disseminating data. He’s got rid of Erika McEntarfer, who by all accounts was, you know, a studious and fine upstanding public servant, and has replaced her with a chap called EJ Antoni, who is a loyalist from the rightwing Heritage Foundation, author of notes with titles including “The US-Japan trade deal is a masterpiece” and “Trump hits home run with June’s job report”.
So this to me sounds bad. What kind of bad stuff can loyalists do with data? Because it has echoes of emerging markets where autocrats don’t like the numbers and they continually fire people they don’t like who bring the numbers to them and keep appointing people who are more and more loyal until you get to the point where markets kind of can’t trust economic data anymore. Is that the end point here?
Chris Giles
Could be. We don’t know yet. It’s a terribly bad sign. We don’t want to have a partisan in charge of statistics because everybody relies on them and markets rely on them, companies rely on them, households ultimately rely on them. The Fed certainly relies on them. So if they become tainted, if they’ve become suspect, then what are people going to do? Well, they’re going to look for proxies. And you see this in China. You know, everyone has their own proxy for Chinese GDP because they don’t believe the official Chinese GDP numbers.
Katie Martin
China famously had a long series of youth unemployment data. And a few years back, these numbers started to show that youth unemployment was rising. So China just . . .
Chris Giles
Deleted them.
Katie Martin
Stopped producing the data like it was never there. Tell me that’s not where we’re going. Is that where we’re going?
Chris Giles
I don’t think we’re going to go down there quickly, but I think we are at a position where people will view the data as suspect and will want to see corroborating evidence of the trends, particularly if things like the press releases that go out with the data suddenly have very partisan language in them. At the moment, they are so boring, and that’s the way you want ’em to be. Yes, they are impossible to read. They’re so boring. And sometimes you would like a little bit more explanation of why the data has moved a bit.
But this is a real difficult trade-off for statistics organisations. Do you want to be absolutely just factual and boring, or do you want to give a little bit more colour around the data? And, you know, there’s not a necessarily right answer, but there are definitive wrong answers to that, which is if you only highlight the statistics, that puts your guy in a favourable light.
And sadly, when you read out some of the headlines of the pieces that EJ Antoni has written, when you read them, that is what he tends to do.
Katie Martin
‘Cause you were reading them late at night last night, I gather.
Chris Giles
I was reading them at about 2.00 in the morning, which doesn’t say very much for my sleep habits, but . . . And it didn’t make me sleep very comfortably afterwards because I didn’t say, you didn’t see immediately that there’s obvious errors in them of the things that are factually incorrect. In fact, it was the more insidious type of error, in my opinion, or more insidious type of technique that people use when they use statistics as weapons rather than as a way of revealing the truth, and it is to find the statistic that suits your argument and suggest that is the only way of looking at the data as a whole.
Katie Martin
Now, the deeper point here is that governments, presidents monkey about with very, very serious, supposedly very boring institutions at their peril. And you don’t get bigger in terms of institutional importance than the US Federal Reserve. So like weirdly like hours after Erika McEntarfer either got fired or was threatened with being fired, someone from the Fed resigned, a Federal Reserve governor called Adriana Kugler. She said she would step down before the end of her term in January.
Now, regular listeners will be aware Donald Trump has had a problem with the current chair of the Federal Reserve, Jay Powell. For a long time, he’s been calling him a “numbskull” and saying he’s too late in cutting rates. Powell has been extremely dignified through this process.
That’s a whole thing. Trump ideally would quite like to fire Powell, but he can’t do it. It’s a whole story. But to fill this role that Adriana Kugler has vacated, he is bringing in, supposedly on a temporary basis, drum roll, Stephen Miran. Now listeners, if that name rings a bell, that’s because Stephen Miran is chair of the Council of Economic Advisers.
So he’s an economic adviser who has the president’s ear. But more importantly, he’s that guy who wrote that paper last year talking about how maybe we should bolt some terms and conditions on to US government bonds so that we can, first of all, weaken the dollar and second of all, effectively get other countries to pay for the security umbrella for the defence that we provide effectively in their name.
So this is the so-called Mar-a-Lago accord idea that was kicking around towards the end of last year and really caused a huge stink. Investors didn’t like it at all. This is very much not how you play nicely in bond markets.
Now this guy is going to be stepping up to a role in the Fed. Happily for everybody, he’s also written a paper about the Fed.
Chris Giles
He has.
Katie Martin
He writes a lot of papers. He’s the co-author of a paper called “Reform the Federal Reserve’s governance to deliver better monetary outcomes”. Again, if you are suffering from insomnia or for some other reason you’re awake at 2.00 in the morning, you can read this.
But what he’s talking about is, first of all, the Fed should not be a political institution. I’m not gonna argue with that. Are you gonna argue with that?
Chris Giles
No. I don’t think anyone will.
Katie Martin
It should be neutral. However, elsewhere in the paper he says board members and reserve bank leaders should be subject to at-will removal by the president to ensure their accountability to the democratic process. Discuss.
Chris Giles
Well, I mean, it’s a contradiction. Let’s be absolutely clear about this.
Katie Martin
I thought I was missing something. I was reading this paper thinking, am I being dense or does this not add up?
Chris Giles
No. There is no way that if you had at-will firing of the entire committee that sets interest rates, then that committee is no longer able to set interest rates operationally independent of the president, because if they did anything the president didn’t like, he could fire them — something he can’t do now, can’t do to any governor. And the Supreme Court has effectively said that no Fed governor can be fired at will by their president. It’s less clear about the regional Fed presidents. That hasn’t been tested, but again, because they were slightly strange and weird constitutional status, it is also not thought to be necessarily easy for the president to just fire them.
Katie Martin
So appointing Stephen Miran to this temporary role, and Trump is referring to him very specifically as being in a temporary role, that doesn’t mean this stuff is going to happen. But it does mean this mindset is going to be inside the doors of the Fed. Is this like the five-alarm fire that tells us we need to seriously worry about Fed independence now, because it’s been simmering in the background for quite a long time because of this animosity between Trump and Powell? But is now the moment when we need to freak out about it?
Chris Giles
I don’t think now’s the moment, but I think now is the moment that we know things are gonna be really rather different come the next Fed chair who will take over in May next year because a Fed governor doesn’t make a huge amount of difference — easily outvoted. There’ll be three people voting definitively for dovish monetary policy because they’re sort of Trump loyalists, but there’s 12 people who vote currently on the FOMC. So three out of 12 isn’t a majority; easy to outvote them. If there was a consistent view for the others to vote in a different way, they might well not be, though I’m not suggesting which way the rest of them would vote or not.
But I think what it does point to is when whoever takes this job in January, that this governor position is gonna come up again in January ’cause the term ends. It could be Miran continuing in the role. But he’s been . . . Trump has said he’s a temp. More likely it’s going to be whoever Trump wants to be the next Fed chair. And the Fed chair has a massively outsized role on everything to do with the Fed, way more important than just a governor.
So I think it’s sort of sounding the alarm that come . . .
Katie Martin
It’s tinkly.
Chris Giles
. . . early summer next year the Fed might be really quite a different institution. We might have a really quite different person in charge and we might have a situation where you have big conflicts on the board. Or you might have a situation where whoever the new Fed chair is a very persuasive person and everyone falls into line and suddenly the Fed becomes a lot more dovish.
I think it’s more likely to be the latter because it’s quite hard . . .
Katie Martin
So it’s more likely to cut rates. That’s the irony of this whole situation as well, that, as you say, a year from now we could be looking at a situation where data is heavily political and we can’t really trust it. The Fed is potentially more dysfunctional, potentially less.
But the irony of this whole thing is that Trump wants lower interest rates. If he would just believe that the jobs market is under a little bit more pressure than it previously was and if he were to take a look at another set of data that the BLS puts out, which is the inflation data, CPI inflation, which showed actually, people thought inflation was gonna pick up this month. Data out earlier today said it actually held steady at 2.7 per cent in July. So not this month, but the latest reading. That points towards rate cuts pretty soon anyway.
Chris Giles
I think there’s a good chance we get a rate cut in September. I don’t think that inflation data’s that helpful to the argument because the headline rate was steady, but beneath the surface you were beginning to see tariffs showing up in goods and services, inflation not falling as fast as it had been. It was offset by energy prices falling rapidly in July. But yeah, you could get rate cuts anyway.
But then I think that, you know, big picture, you stand back and you say, well, if we can’t trust the data, if we think the Fed is not really an independent institution or is losing some of its independence and it’s just doing what Trump wants, well, you could have therefore the whole of both economic data and the most important economic institution doing things that I would say the vast majority of economists think is pretty dumb. And we don’t know that we’re gonna get that yet, but . . . And that’s, you know, is entirely liveable through in the short term, but things don’t tend to end well when there’s pretty dumb economic policy.
Speaking of dumb, we’re gonna be back in a second with Long/Short.
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Okie doke. It’s time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Chris Giles, what you got?
Chris Giles
I’m gonna go long PhDs. These doctorates, these theses that people write just seem to be extremely effective at giving credibility to people who otherwise don’t seem to meet the test of necessarily being very sensible. But it just is a wonderful thing they have on their résumé.
Katie Martin
Nor do I. I am long Mauritius. Just got back from my holidays there and I am now a one-woman Mauritius marketing board. Beautiful island, incredible beaches, wonderful hiking, dolphins, monkeys, tea plantations, rum, the whole thing. Amazing.
Chris Giles
Have they bought you flights?
Katie Martin
(Laughter) They haven’t, actually. Would’ve made my holiday a lot cheaper, but like I think people think of Mauritius and they think of like white sandy beaches and honeymoons, and I guess that is a thing you can definitely do there. But there’s absolutely stacks to do. Lovely place. Had a very nice time. Very sad to be back. However, fun chat.
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So listeners, we are going to be back on Thursday. Listen up then and in the meantime, stay sunny. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. Topher Forhecz is the FT’s acting co-head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
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