To strengthen trade relations, South Korea is making intentional, well-calculated moves. To shore up their support back home, Chinese negotiators have given former president Donald Trump a smorgasbord of personal gifts while negotiating a much tinier trade deal. This gesture comes at a time when the United States is grappling with economic challenges, including a slowdown in job growth and recent interest rate cuts by the Federal Reserve.
The Fed just cut rates for the second time this year. This decision does not obscure their deep concerns about the labor market’s health. Job gains have really slowed down over the course of 2023. Nonetheless, the unemployment rate has leaned up modestly, but even as of August, it too has been low. These economic indicators have prompted discussions about the potential impacts of the ongoing U.S. government shutdown, now in its 29th day, on future central bank decisions.
Economic Indicators and Federal Reserve Actions
The Federal Reserve’s third and final rate cut of 2019 highlights the central bank’s focus on a more muted economic expansion and restrained inflation. Jerome Powell, the Fed Chair, stated, “We haven’t made a decision about December.” The state of our economy is an unknown as the threat of inflation continues to escalate. It’s still well above where it was earlier this year, contributing to the overall uncertainty.
The Fed acknowledged that “job gains have slowed this year, and the unemployment rate has edged up but remained low through August. More recent indicators are consistent with these developments.” Those in bottom income brackets—particularly those earning less than $75,000 annually—are feeling less positive about the economy. Heightening concern over this trend is the more recent pressure on the Fed to both support labor markets and address inflation concerns.
Michael Klein, an economist, commented on the Fed’s predicament: “The Fed has a challenging line to walk. Lower interest rates to support labor markets and growth, or raise them to tamp down inflation. For now, they are taking a cautious approach tilted a bit towards the growth concerns.”
Corporate Downsizing Amid Economic Concerns
In the wake of these economic disruptions, large-scale layoffs of corporate employees have been announced. Major companies such as Amazon and Paramount are laying off thousands. While Amazon gets rid of 14,000 corporate jobs, Paramount plans to cut 2,000 employees from its workforce. These layoffs are a reminder of the precariousness that can plague any sector during an unpredictable economic climate.
The layoffs are a microcosm of what’s happening across the economy, as companies look to recalibrate their workforces in the face of decelerating economic growth. The U.S. government is the nation’s largest employer. At the same time, it’s under large stress as the shutdown continues to disrupt federal work and hurt employee morale.
Trade Relations and Global Economic Implications
As South Korea seeks to bolster its trade relationship with the U.S., Trump expressed optimism about future negotiations with China. Trump reiterated those expectations for a “very tremendous deal” at his soon-to-be inaugural summit with Chinese President Xi Jinping. Perhaps the biggest potential deal in recent years between China and the U.S. Perhaps even more importantly, it will have a far-reaching impact on the global economy.
Throw Nvidia’s recent milestone of becoming the first company to reach a $5 trillion valuation into the mix and you have a perplexing economic picture. These milestones are positive signs of performance in some sectors, a good sign perched on the struggles of many other sectors.
Jerome Powell emphasized the Fed’s commitment to addressing economic changes promptly, saying, “We remain well-positioned to respond in a timely way to potential economic developments.” There remains great ambiguity about how these changes will affect future monetary policy decisions.
