Fed trapped between Trump, prices and unemployment

For investors, this uncertain context pleads in favor of a long -duration strategy on American sovereign obligations. In addition,

The American employment report published in early August highlighted a worrying weakening of. Similarly, the labor market. Consequently, With only 73. In addition, 000 job creations in July and massive negative revisions on May and June (-258,000), the three-month mobile average collapses at 35,000. However, It is the lowest post-pandemic dynamic observed to date. However, the unemployment rate remains officially stable at 4.2%, online with its “natural” level estimated by the Fed. Consequently, Behind this apparent stability, deterioration is more diffuse: the number of long -term unemployed exceeds 1.8 million. In addition, the average duration of unemployment increases to 24 weeks, and the flows of new unemployment entrants explode (+275,000 in July, fed trapped between trump, prices a record since 1967).

In parallel, American trade policy restores vigor to inflationary tensions. Consequently, New customs duties on imports – including 39% on Swiss products – mechanically increase the prices of equipment, electronic or medical. For example, Core inflation could temporarily cross 3% in the second half, even though wage growth is accelerating (+3.8% annualized in T2 according to the cost index). In this context, the dollar has weakened, the rates at 10 years American fell to 4.22%. and the markets now anticipate 60 points of basis of rate drop by December, with a probability of 92% of a relaxation from September 18.

The federal reserve is found in a strategic impasse.

The federal reserve is found in a strategic impasse. On the one hand, normalization of the labor market is real, but progressive. It follows partly from a marked slowdown in immigration (vive force of the post-Covid fed trapped between trump, prices rebound). with 730,000 less foreign workers since January. The contraction of the labor supply blurs the reading of conventional indicators such as job creations or the participation rate. In parallel. the drop in hires is accompanied by a very low maintenance of layoffs, confirming a dynamic “Slow to Hire, Slow to Fire”.

On the other hand, the Fed is faced with a resurgence of exogenous inflationary pressures. The return of tariff barriers, driven by the Trump administration, mechanically adds certain imported goods and relaunches inflation expectations. Additionally, The effect is all the more sensitive since companies. already constrained by the scarcity of workforce, lengthen the schedules rather than recruiting, and meet their wage offers upwards. The health sector, the main provider of jobs (+80% of the gains in 2025), cannot compensate for general atony alone.

In addition. there is growing political pressure: the surprise resignation of Governor Adriana Kugler – fed trapped between trump, prices praised by Donald Trump as an “opportunity to reposition the Fed” – opens the way to a partisan recomposition of the monetary institution. The White House clearly displays its intention to orient the Fed towards a more accommodating monetary policy. consistent with its tax recovery program. Such politicization strengthens uncertainty and weakens the independence of the Central Bank, however essential during the period of economic tensions.

Implications – For investors, this uncertain context pleads in favor of a long -duration strategy on American sovereign obligations. The degradation of the labor market. the persistence of high rates on private debts and low -level signals on short rates justify a revision of the decline in Fed rate anticipations, especially for 2026. Dollar withdrawal. fueled by the monetary realignment desired by Trump, accentuates the relative attraction of assets in European and Swiss foreign currency.

But the Fed will have to be extremely cautious. fed trapped between trump, prices Too fast softening would risk fueling a new prices-side loop. in particular in a context of migration restrictions and protectionist industrial policies. Conversely, an prolonged status quo would still weaken the dynamics of employment. The August employment report. expected on September 5, will be crucial: if it confirms the weakness of job creations without surge in inflation, it could open the way to a drop of 25 bp from the September 18 meeting.