With France under the threat of a crushing budgetary crisis, the economic context is tense. At the same time, worries about the Federal Reserve’s independence is prompting the United States to nervously await important Non-Farm Payroll (NFP) data. On Monday, the motion of confidence in French President Emmanuel Macron’s government will most probably be defeated. This reversal will further impede efforts to address the country’s growing fiscal challenges. U.S. payrolls are forecast to rise by some 75,000. Even this number is not enough to maintain a rate of economic growth of 3%.
French officials are under increasing pressure to address the country’s growing budget deficit, which allegedly breaches treaty obligations. Fitch Ratings has declared that it is placing its current rating of France under review. The tide really is turning, and France’s credit rating is still in the swamp. We need leadership and we need it urgently to address these fiscal problems. As an example, recent actions by the Trump administration have led many observers to fear for the integrity and reliability of U.S. economic data.
The Upcoming NFP Data and Its Implications
Given how heavily it’s relied on to set economic policy, the experts’ excitement about the coming NFP report is understandable. Economists estimate that around 75,000 jobs were created in the past month alone. As experts have been warning for over five years now, that number is woefully below the level of growth benchmark needed to keep our economy humming along.
With the release of these projections, alarm bells are echoing. Unless job creation picks up markedly, we’ll have a hard time ensuring that the U.S. economy remains on an upward growth path. Just last week, the Atlanta Fed’s GDPNow model was making headlines with its call for a tepid Q3. It illustrates just how much stronger job growth the economy would require to get anywhere close to a 3% growth rate. This new expectation adds even more weight and scrutiny to the forthcoming NFP figures and what they may mean for monetary policy.
Political Turbulence and Economic Consequences
That unpredictability is made worse by the political climate — in France as much as the United States. Meanwhile in France, President Macron’s minority government is believed by most analysts to be staring down a confidence vote this week that many believe will fail. A failure could lead to further destabilization of Macron’s administration and complicate efforts to remedy the country’s budgetary issues.
Back in the U.S ., the administration of President Trump recently booted their chief Bureau of Labor Statistics (BLS) statistician. This move has raised very serious concerns about the integrity of economic data. Experts suggest that this action could undermine trust in the forthcoming NFP report, with implications for how investors and policymakers perceive economic indicators moving forward. The possibility that Trump will pack the Federal Reserve with yes men to execute his whims only makes the independence of U.S. monetary policy a more urgent concern.
The Federal Reserve’s Challenges Ahead
The Federal Reserve is also due for important deliberations in Q1, as it gets ready to appoint new regional bank governors. At least four more sitting governors will be replaced, tipping the balance even more and making the institution’s dynamics as unpredictable as ever. Chair Jerome Powell’s term is up in May. Concerns have been growing about his future role, and whether he will remain atop the Fed as he faces blistering new scrutiny.
Japan is one foreign bond market that market observers monitor very closely. All of these markets are sending alarming signals about the Fed’s independence in light of looming political pressures. That external pressures will start steering domestic monetary policy, which many economists find frightening. This amounts to a whole new layer of complexity atop an already worrisome economic environment.
France’s budgetary crisis will be the one everyone will watch, while looking at all of these developments. Providing a lot of fodder for discussion will be the United States’ labor market data. The relationship between government policy and economic performance might well be a bellwether of things to come for both countries.