June Nonfarm Payrolls Surprise to the Downside, Reducing Rate Hike Pressure

Data showed that the U.S. economy added just 57,000 nonfarm payroll jobs in June, less than half of the market expectation of 113,000. The April and May figures were also revised down by a combined 47,000 jobs. The unemployment rate fell to 4.2%, but mainly because of a decline in the labor force participation rate rather than a genuine improvement in labor market conditions.

This was the second nonfarm payrolls report since Waller became Federal Reserve Chair in May. Following the release of the data, market expectations for a September rate hike fell from around 75%, with some traders pushing their expectations for the next hike back to December. During the interview, the reporter asked Trump directly whether the weak employment report gave Waller greater flexibility on the question of rate cuts. Trump responded with the remarks quoted above.

Waller’s Own Position Stands in Contrast to Trump’s Remarks

In previous months, Trump had repeatedly and publicly urged former Federal Reserve Chair Jerome Powell to cut interest rates. Those comments were explicit, one-sided, and carried clear pressure. This time, however, Trump offered Waller no specific instruction. He did not say rates “should be cut” or that action “should be taken as soon as possible.” Instead, he simply said, “Do what you have to do.” That change in tone gives Waller room to maneuver in two ways.

First, he can either raise rates or refrain from doing so. If the July FOMC meeting results in a rate hike, Waller can say, “This is what I have to do.” If the Committee instead decides to leave rates unchanged or cut them, he can make the same argument. Trump’s remarks did not point in any specific policy direction.

Second, he can attribute responsibility to the Board. During the interview, Trump also said: “He has a Board that may be a little hostile. Maybe it's a Board that wants to do the wrong thing.” The implication is that even if Waller wants to pursue a particular course of action, the Board may not support him. This gives Waller an external explanation if certain policy actions cannot be implemented—not because he is unwilling, but because the Board stands in the way.

Although Trump has given Waller room to maneuver, Waller’s own recent remarks have not been dovish. Speaking at the European Central Bank Forum in Sintra, Portugal, on July 1, Waller stated clearly that the Federal Reserve would not tolerate inflation remaining above its 2% target. He said that if markets, businesses, or households believe the Fed is willing to accept inflation above 2%, “they will be disappointed.” Waller also declined to give any indication of whether the Fed would raise rates in July, emphasizing that he would not provide forward guidance. For those expecting a more accommodative policy stance, his response was simple: “They will be disappointed.”

The Associated Press interpreted Waller’s recent remarks as signaling that the Federal Reserve remains committed to using firm measures to combat inflation and achieve its 2% target, suggesting that the rate cuts Trump has been seeking may not materialize. However, I see it differently. Consider the timeline: Waller made those comments on July 1, while Trump’s interview took place on July 3. Trump made his remarks fully aware of Waller’s public stance, yet still said, “I know where he would like to be.” In late June, Academy Securities analyst Peter Tchir argued that Waller’s hawkish posture could be a “smokescreen” designed to pave the way for future rate cuts. Trump’s July 3 remarks may have provided precisely the political cover for that strategy—if Waller ultimately shifts toward cutting rates, Trump has already laid the groundwork to justify the move.