Trump makes Powell the fall guy of his trade war

The recent economic developments have put to rest any doubts about the potential impact of the trade war on the economy. President Trump has made it clear that he will blame the Federal Reserve and its leader, Jerome Powell, if the economy starts to buckle due to the trade war. Trump believes that the Fed should be proactively cutting interest rates to ease the pain of any economic bumps ahead, despite the inflation risk fueled by tariffs. The private sector added just 37,000 jobs in May, which is down from the 60,000 jobs added in April and well below the 110,000 jobs economists anticipated. This soft hiring data, along with a decline in the Institute for Supply Management's index of activity in service industries, suggests that economic activity may be starting to buckle under the pressure of erratic trade policy. Trump's social media comments make it clear that he intends to shift blame for any weakening onto the Fed, which has left interest rates unchanged so far this year. The Fed is waiting for clear evidence of whether higher inflation or labor market softening is the more urgent concern before adjusting interest rates. The weak data does not point to a collapsing labor market, but rather hiring hesitancy, according to ADP chief economist Nela Richardson. The nation's smallest businesses, those with fewer than 50 employees, lost more jobs than larger firms, which is a weakness that is being closely watched. The Federal Reserve's next policy committee meeting is scheduled for June 18, and the Labor Department will release May jobs data on Friday, which will provide further insight into the state of the economy.