Of all the crazy and unpredictable things US President Donald Trump has done during his second stint in the White House, whether one agrees with them or not, surely the most absurd happened in early August. After disappointing jobs figures, he summarily sacked the head of America’s labour statistics agency.
On Saturday, 2 August 2025, Trump ordered officials to fire Bureau of Labor Statistics commissioner Erika McEntarfer, who was appointed by his predecessor Joe Biden.
“[McEntarfer] will be replaced with someone much more competent and qualified. Important numbers like this must be fair and accurate, they can’t be manipulated for political purposes,” Trump said, alleging (without evidence) that she had reduced the numbers to help Biden.
Being a messenger in Donald Trump’s world is a risky business. Bearers of bad news tend to end up motionless in a dark alley. McEntarfer’s transgression was simply to oversee the compilation of the latest US jobs report, which exposed last month’s hiring slump and included downward revisions to the previous two months, which were even worse.
Who knows how long her successor will last, or whether they could be tempted to massage the numbers upwards (and risk being caught) simply to avoid the president’s ire?
What we are witnessing is the Bananafication of America, with all due respect to republics which export bananas and are now, by comparison with the US, models of sane, balanced economic and monetary management.
In the crosshairs
Meanwhile, the tussle over the chief US labour statistician is merely the hors d’oeuvre. Ever since Trump launched his global tariff war on 2 April 2025, there has been one economic official in his crosshairs: the chairperson of the Federal Reserve, Jerome Powell. Powell has been labelled by Trump a “moron”, “knucklehead”, “numbskull” and “bonehead” for refusing to cut interest rates. “Too late, Jerome!” goes the president’s refrain.
The intimidation has not worked. With inflation inching up to 2.6% last month, even before the full effects of Trump’s protectionism fed through, Powell has kept the Fed’s policy rate unchanged. That leaves him in an untenable position; either he fulfils his mandate as central bank governor, or serves the whim of his president. He cannot do both.
Powell’s term does not end until next May. It is unlikely that Trump’s patience will last that long. On Thursday he took advantage of the resignation of Fed governor Adriana Kugler to appoint Stephen Miran, chair of the White House’s Council of Economic Advisers and a noted economic wild card, to the board. This appointment could in effect zombify Powell’s job well before his expiry date.
What next? Will Trump appoint a complete joker as chairperson — the monetary policy equivalent of a Robert F Kennedy Jnr or a Pete Hegseth — or someone broadly credible who will nevertheless find ways of doing his bidding, such as Kevin Hassett?
As Machiavelli mused, fortune is the arbiter of at least one half of our actions. If Powell’s replacement gets lucky the US economy will keep cooling, giving plausible cover to cut rates, even if not fully to the extent that Trump is demanding. Trump has been eyeing the European Central Bank’s policy rate of 2%, which is less than half the current Fed’s rate and, given the current steamy state of the US economy, unthinkable.
However, if the new chairperson was unlucky and slowing growth coincided with rising prices — known as stagflation — the dilemma becomes brutal; should they emphasise the price stability element of the Fed’s dual mandate, or its full employment twin? While Fed officials usually pick the former, a more pliant chairperson would surely pick the latter. This is how one plants the seeds of 1970s-style inflation. It is no accident that the last time a president arm-twisted a Fed chairperson into pro-cyclical easing — Richard Nixon with Arthur F Burns in the early 1970s — runaway inflation duly followed.
Either way, what looks increasingly evident is that whoever it is will have to oversee a slowing economy. The numbers from the recent jobs report were poor enough for Trump to shoot the messenger. Payrolls rose just 73,000 in July, while the prior two months were revised down nearly 260,000. Over the past three months, employment growth has averaged a paltry 35,000, the weakest since the pandemic. The unemployment rate also ticked higher. As one Wall Street analyst put it: “Ouch.”
But it is not just the jobs market flashing red. The housing market is also creaking.
“Property is the most rate-sensitive part of the economy, and as such it has historically led the economy into recessions,” says Mark Zandi, chief economist at Moody’s Analytics. “This hasn’t happened so far, but with rates remaining stubbornly high, the situation may change.”
Context
It is also important to consider the context. Thirty-year fixed mortgages remain the norm in America, with adjustable rate loans far less common than before the financial crisis. This delays the pass-through effect of higher rates to household budgets. But one can’t defer the inevitable forever. First-time buyers are now devoting a larger share of median income to mortgage payments than at the 2006 housing bubble peak. The share of outstanding mortgages carrying rates above 6% has jumped in the post-pandemic period. Unsold new-home inventory has climbed to its highest since mid-2009.
Third, and perhaps most critical for near-term growth, is consumption. After powering the post-pandemic expansion, real consumer demand has fallen since December 2024. Lower income households were squeezed first; initially by high interest rates, then by broader uncertainty and finally tariff-induced inflation. Until recently, overall spending was propped up by affluent households — those top 20% of earners in America — who astonishingly account for more than 60% of spending. But now even that pillar of the economy is wobbling.
“Behind the recent moribund consumer data are more cautious well-to-do households,” Zandi warns. “Price increases from tariffs will hurt those on lower incomes more. As the tighter economy also catches up with the rich, consumer demand could fall faster.”
Fourth, and perhaps most consequential of all for the future of the Fed, is the path of inflation. On a six-month rolling basis, the Fed’s preferred gauge, the Personal Consumption Expenditures Price Index, has been climbing. Inflation is rising. And because goods prices were already moving up before tariffs took full effect, the re-acceleration cannot be blamed on trade policy alone. Inflation from tariffs is something we have to look forward to.
The latter half of 2025 and the whole of 2026 thus look fragile; a cooling economy, a sticky (or rising) price level, and unrelenting political pressure on the Fed to cut rates. That is all too reminiscent of the 1970s; pro-cyclical policy into a supply constrained economy, with central-bank independence on the line. The White House appears determined to install loyalists. The statistical agencies are being politicised. The Fed is under attack.
The Bananafication of America has arrived. DM
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