Trump, Waller, Bowman, and Dutta Vindicated as Jobs Report Implodes Powell’s Narrative
The July jobs report was a disaster for the American worker, the U.S. economy, the Federal Reserve, and Jerome Powell.
But it was also a vindication for Donald Trump, for dissenting Fed Governors Christopher Waller and Michelle Bowman, and for a private sector economist named Neil Dutta.
With payrolls rising by just 73,000 and prior months revised down by a stunning 258,000 jobs, the data confirmed what critics have warned for months: the Fed’s overly tight policy has weakened the labor market. It’s hard to imagine a sharper rebuke to Jerome Powell’s complacent view of the labor market.
Trump has repeatedly argued that Federal Reserve policy was strangling growth just as his second administration was beginning to turn the economy around. Now he has the data to prove it. Waller and Bowman warned in real time that the labor market was weakening. And Dutta—almost alone among Wall Street economists—correctly diagnosed the softening months ago.
Tariff Derangement Syndrome Goes into Overdrive
The fanatical opponents of Trump’s trade policies are already insisting that tariffs were somehow the cause of today’s grim job numbers. But that narrative crumbles under a moment’s inspection. The industries shedding workers—construction, manufacturing, and professional business services—are precisely those that respond most to tight monetary policy, not trade friction.
In fact, if you went searching for the smoking gun of a tariff-driven slowdown—lost farm jobs, hollowed-out ports, slumping warehousing employment—you’d come up empty. Farm employment rose for the third straight month. Transportation and warehousing payrolls ticked up. Even retail, supposedly the canary in the tariff coal mine, added 3,800 jobs. That’s not the signature of a trade war.
And the dog that didn’t bark? Foreign retaliation. In a classic trade war, the damage to jobs doesn’t come from U.S. tariffs—those usually boost U.S. employment—it comes from other countries slamming the door on our exports. But there’s been no such response. The EU, Japan, and others are still striking trade deals. No tit-for-tat. There’s no trade war at all. Just a new coalition of trading partners working together to rebalance the world’s economy.
The Fed’s Restrictive Policy Is to Blame
So, what’s to blame if not tariffs? The Federal Reserve and its chairman, Jerome Powell. Or more precisely, blame Powell’s stubborn refusal to admit that high real rates were unduly inflicting harm on the labor market. The weakness in today’s report is not random—it’s precisely what monetary theory and Fed-funded research have long told us to expect.
Construction employment barely budged. Manufacturing payrolls fell for the third straight month. Temporary help services, which act like the labor market’s early warning system, shrank again. These aren’t trade casualties. These are classic symptoms of a tight-money economy.
What the Research Shows and Why It Matters Now
Peer-reviewed research, Federal Reserve staff studies, and decades of macroeconomic history—from Volcker’s shock therapy to the post-2008 normalization—all tell the same story: when the Fed tightens and keeps monetary policy restrictive, jobs in housing and manufacturing are the first to go. These sectors depend on financing, long-term planning, and durable goods demand—all of which wither when interest rates rise.
Theoretical models explain the mechanics. In Dynamic Stochastic General Equilibrium (DSGE) economic models—the very ones the Fed uses to guide policy—rate hikes suppress demand for capital goods and increase the cost of investment. Sectoral frictions and credit constraints amplify the damage. Employment falls not evenly, but along predictable fault lines: construction sites, factory floors, and white-collar firms that plan their hiring around growth expectations.
Meanwhile, more insulated sectors—health care, education, social assistance, and government—often continue to grow, cushioning the aggregate figures and masking the damage beneath.
Policymakers long relied on this knowledge—at least prior to losing their minds to Tariff Derangement Syndrome. It told them to expect weakness in the interest-sensitive corners of the economy to show up early in a tightening cycle. They should monitor whether that weakness metastasizes. But they took their eyes off the leading indicators in order to express their fear and loathing of import duties.
This month’s jobs report fits the historical pattern perfectly. It doesn’t indict trade. It indicts tight money. And it warns that the pain is no longer theoretical.
The Waller-Bowman Vindication
This week’s grim numbers also vindicate the dissents of Fed Governors Christopher Waller and Michelle Bowman. Both argued—prior to the report—that it was time to cut interest rates.
Waller dissented from the Fed’s decision to hold steady in July, writing that “private-sector payroll growth is near stall speed” and that “we should not wait until the labor market deteriorates before we cut the policy rate.” His July 17 speech laid out the empirical case: GDP growth was running well below trend, inflation was softening outside of tariff-affected goods, and unemployment was drifting up. By August 1, Waller warned that labor markets “often turn fast.”
From left to right: Federal Reserve officials Christopher Waller, Philip Jefferson, Jerome Powell, Michelle Bowman, and Lisa Cook during a Fed Listens event in Washington, DC, on March 22, 2024. (Al Drago/Bloomberg via Getty Images)
Bowman joined Waller in dissenting. She emphasized the importance of looking at “a less dynamic labor market” and signs of economic fragility. She highlighted the fall in the employment-to-population ratio, weakness in private domestic final purchases, and narrowing job gains concentrated in less cyclical sectors. She also noted that lower-income households were facing increasing credit stress and declining liquid buffers.
Neither Waller nor Bowman advocated an aggressive series of cuts. Both wanted to begin moving cautiously toward a neutral stance, not exactly a dangerous move. Their warnings—dismissed by Powell and others—look prescient now. They saw the slowdown coming. They read the data right.
The Case for Dutta: The Man in the Watchtower
So did Renaissance Macro’s Neil Dutta. While many market economists focused on lagging indicators or shrugged off growing evidence of a slowdown, Dutta consistently warned that Trump inherited a weakening economy from the Biden administration. He pointed to softening real growth, a loss of momentum in interest-sensitive sectors, and a pattern of revisions that suggested earlier labor market data had overstated strength.
In late July, he noted that the three-month trend in private payroll growth was hovering near levels that typically precede Fed cuts. He called attention to the deceleration in wage growth, the narrow distribution of job gains, and the rising share of part-time employment. And he warned—again and again—that Fed policy was too tight given the underlying data.
What made Dutta stand out was not just his recognition of economic softening—it was his insistence that the Fed was misreading the tea leaves. While others clung to headline job gains or nominal wage prints, he drilled into composition effects, revisions, and the leading indicators embedded in temporary help, manufacturing hours, and quit rates. He treated the data like a detective—not a cheerleader or a tariff fear-monger—and as a result, he spotted the turn before it showed up in the top-line numbers.
This morning’s revisions—slashing more than 250,000 jobs from prior months—make Dutta look like the most accurate forecaster in the field. Now that President Trump is looking to fill a vacancy on the Fed Board—Fed Governor Adriana Kugler submitted her resignation on Friday for a term that was due to expire in January—he should ask his Treasury Secretary Scott Bessent and National Economic Director Kevin Hassett to bring Dutta into the Oval Office.
Dutta’s presence would add intellectual seriousness and empirical discipline to a Board too often driven by stale consensus and outdated views of trade policy. He would not arrive with a political axe to grind, but with the data-focused mindset the Fed desperately needs. His forecasting track record is strong, his judgment has been tested, and his credibility is rising—just as Powell’s is falling.
And if Jerome Powell steps down from the Board when his chairmanship ends—as he should—the administration would have a second opportunity to reshape monetary policy from the ground up. Joe Lavorgna and Stephen Miran, both currently serving in the administration, would be excellent choices. Both have warned of the dangers of overly tight policy and bring real-world private sector experience alongside a commitment to pro-growth America First economics.
Trump saw it first. Now he should elevate those who saw it with him. The Fed got it wrong. The academic and Wall Street conventional wisdom economists blew past the signals, so obsessed with their delusional fear of tariff-induced inflation that they couldn’t see what was happening right in front of their eyes. But Trump called the slowdown, and so did a handful of brave and independent thinkers—Waller, Bowman, and Dutta. As the White House reasserts control over economic policy, it’s time to reward foresight and seriousness. The Trump economy needs men and women standing along the watchtowers who see clearly and believe we should act early.
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