Trump’s ‘Golden Age’ is still a fairytale

The rate of jobs creation in the US made an unexpected U-turn last month after a dismal 2025. Donald Trump was excited by the numbers, but may have misinterpreted and overstated their implications.

“Just in: GREAT JOBS NUMBERS, FAR GREATER THAN EXPECTED!,” he trumpeted on Truth Social.

“THE UNITED STATES OF AMERICA SHOULD BE PAYING MUCH LESS on its Borrowings (BONDS!) We are again the strongest country in the World, and should therefore be paying the LOWEST INTEREST RATE, by far. This would be an INTEREST COST SAVINGS OF AT LEAST ONE TRILLION DOLLARS PER YEAR – BALANCED BUDGET, PLUS. WOW! The Golden Age of America is upon us!!!”

There’s a lot to unpack there, but the jobs numbers are a starting point.

Where Wall Street forecasters expected a weak job market in January, the Bureau of Labor Statistics figures showed 130,000 jobs were added, while simultaneously revising down the number of new jobs created over the past two years by almost 900,000. Last year, instead of its previous estimate of 584,000 new jobs, it said the market added only 181,000.

That’s an annual “benchmark” revision, which underscores that the BLS models tend to over-estimate employment growth, largely because of the difficulty in estimating the net effect on employment of business closures and openings.

Whether that’s the case again won’t be known until this time next year, although the data is at odds with private sector employment surveys and a recent surge in business bankruptcies.

It’s also worth noting that most of the growth in jobs – 124,000 of the 130,000 net jobs added – came from the healthcare and social assistance sectors, with some (presumably data centre-driven) growth in construction jobs. The dominance of growth in jobs reliant on the unhealthy, aged and impoverished isn’t an indicator of a booming private sector.

At face value, however, the data showed a surprising turnaround in jobs creation, one that tends to conform to the view expressed by the Federal Reserve Board chairman, Jerome Powell, last month when he said the labour market was showing “evidence of stabilisation”.

The overall state of the labour market is being increasingly described by private sector economists as one of “low hire, low fire”, with the weak rate of new employment opportunities offset by a shrinking pool of potential employees, thanks to Trump’s controversial wave of round-ups and deportations of undocumented immigrants (and more than a handful of US citizens).

While Trump sees that as evidence of economic strength, it conflicts with his desire for lower interest rates and will make it more difficult for his nominee for Powell’s replacement, Kevin Warsh, to deliver the sizeable rate cuts he presumably promised Trump to win the role.

With the jobs market stable, but inflation of about 3 per cent still running well above the Fed’s target of 2 per cent, there is no pressing rationale for the Fed to act. Where, before the employment report, markets were pricing in a rate cut in June, after the report, the first cut this year was pushed back to July.

Trump said earlier this week that, if Warsh delivers what he (Trump) wants, US GDP could grow at a rate of 15 per cent a year.

That is absurd but, even if US growth were to accelerate relatively modestly, it would create pressure on the Fed to raise rates, not cut them, to avoid an inflation breakout.

While Warsh believes the US can grow more strongly without generating inflation because of the productivity gains from artificial intelligence, that’s a thesis that his fellow voting members at the Fed are only likely to respond to when there is clear evidence of non-inflationary growth.

Trump doesn’t appear to understand the relationships between an accelerated growth rate, inflation and interest rates – or the extent to which the Fed can control the interest rates that matter. He’s also not good at maths.

The US government’s debt when Joe Biden handed over the presidency was just over $US36 trillion ($50 trillion). Today, after only a year of the Trump administration, it is $US38.6 trillion and rising rapidly. The annual net interest cost of that debt is about $US1 trillion, and also rising rapidly.

The US Congressional Budget Office (CBO) said this week that Trump’s policies would add $US1.4 trillion to budget deficits over the next decade, with this year’s deficit of $US1.9 trillion rising to $US3.1 trillion by 2036, despite the inclusion of $US3 trillion of revenue from Trump’s tariffs.

Unlike Trump’s tax cuts, which are baked in indefinitely and unlikely to be unwound, the tariff revenues might not be there through the decade if the Supreme Court rules against the legitimacy of the tariffs or there is a change of administration after the next election.

In any event, where Trump has said, in another Truth Social post this week, that a one percentage point cut in interest rates would save the government $US600 billion in interest costs and that a cut of two percentage points would wipe out the deficit, his maths is nonsense.

To wipe out budget deficits with interest cost savings would require solidly negative interest rates on the debt.

Not only would that deter anyone from lending to the US, but the Fed, even if it completely surrendered to Trump’s will, can’t deliver anything close to what Trump wants – unless the US economy tanks and a depression threatens. Trump has never understood the limits to the Fed’s influence over the bond market.

Donald Trump was excited by the numbers, but may have misinterpreted and overstated their implications.

The Fed can only influence the shorter duration securities in the US bond market via the federal funds rate, which currently targets a rate of between 3.5 and 3.75 per cent. The rates on the longer-term bonds that matter – the yields on 10-year bonds particularly – are set by the market. They rose in response to the jobs data, with the yield on 10-year securities edging up 3 basis points to 4.18 per cent.

If the Fed were to significantly lower rates today, in the absence of a steep recession (and no signs of stagflation), the yields on the securities that dictate the interest costs of US companies and households would soar.

Trump might believe the US is the strongest country in the world – presumably he’s referring to the US economy and America’s economic clout – but its government’s finances are poor, deteriorating and, as the CBO concluded, unsustainable. Its net debt-to-GDP ratio is already above 100 per cent and, according to the CBO, will, on current policy settings, hit 120 per cent within a decade.

The jobs data, if it holds up, is a tentative sign that last year’s threats to employment – the savage cuts to the government workforce and the impact of Trump’s tariffs on companies’ willingness to hire – might have peaked, at least for the moment.

They are, however, only one month’s numbers and aren’t strong enough to depict the booming economy, with declining inflation, that Trump and his economic advisers keep claiming they’ve created.

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