US Economic Update: Biden Bans, Trump Tariffs & Labour Data

Although US markets are closed today, Thursday, 9 January, in observance of a national day of mourning for former President Jimmy Carter, significant news has emerged from the world’s largest economy. Let’s dive in:

US Unemployment Hits an 11-Month Low

Weekly labour data released on Wednesday showed that unemployment claims dropped to an 11-month low last week. Initial claims for state unemployment benefits decreased by 10,000, reaching a seasonally adjusted 201,000 for the week ending 4 January, the lowest level since February 2024, according to the Labour Department. Economists surveyed by Reuters forecasted 218,000 claims for the same period. 

This decline is seen as a positive signal for labour market stability, although slower hiring has resulted in some laid-off workers facing prolonged unemployment. Further reinforcing the market's stability, government data on Tuesday revealed an increase in job openings in November, with 1.13 vacancies for every unemployed person, up from 1.12 in October. Meanwhile, uncertainty surrounding the impact of proposed policies from President-elect Donald Trump’s incoming administration is believed to be influencing the Federal Reserve’s decision to pause interest rate cuts this month.

According to economist Nancy Vanden Houten, “the low level of claims is consistent with a labour market that continues to be characterised by a low pace of layoffs.”

Additionally, besides yesterday’s data, traders may want to note Tuesday’s BLS jobs data which showed an additional 8.1 million job openings at the end of November, marking an increase from October’s 7.84 million openings.

How Might This Affect the Fed?

It is no secret that labour market conditions can affect the Federal Reserve’s monetary policies. As such, for those seeking insights into the state of the economy and its possible trajectory, it would be helpful to know how the recent jobs data would affect the upcoming Fed rate decision on 28-29 January.

Fed Governor Christopher Waller stated yesterday that more rate cuts may be on the horizon but “will depend on how much progress we make on inflation while keeping the labour market from weakening.”

As for economists, some of them posit that the rate cuts while they may take place will be “gradual” and that Wednesday’s labour data shows that the Fed doesn’t need to “be in a rush to ease monetary conditions. Fed policy is aimed at supporting the economy and the job market before a recession shapes up.”

Biden Continues His AI Chips Exports Limitations 

Just days before President-elect Donald Trump was set to take office on 20 January, current President Joe Biden imposed additional restrictions on the export of artificial intelligence (AI) chips. 

These measures aimed to hinder technological progress in China and Russia. The US intends to limit the sale of AI chips used in data centres, targeting both countries and individual companies. The goal is to promote AI development within allied nations and encourage businesses globally to adhere to American standards. This initiative would result in a broader application of semiconductor restrictions, aiming to control the distribution of AI technology amid rising demand.

What Does It Mean For Nvidia?

Following the news, Nvidia’s stock fell by over 1%. In response to the move, Nvidia, the chip manufacturing giant, stated, “A last-minute rule restricting exports to most of the world would be a major shift in policy that would not reduce the risk of misuse but would threaten economic growth and US leadership.”

Will Trump Declare a National Economic Emergency?

Trump, known for his hardline approach to trade restrictions, is reportedly considering declaring a national economic emergency to justify imposing widespread tariffs on both allies and adversaries. This move, detailed in a report released on Wednesday, would enable Trump to create a new tariff system using the International Economic Emergency Powers Act (IEEPA), which grants the president unilateral authority to regulate imports during a national emergency. 

This wouldn’t be the first time Trump has invoked the IEEPA. In 2019, he threatened tariffs on Mexican exports to curb the flow of undocumented immigrants crossing the US border.

How Did the Markets Perform on Wednesday?

Considering the news mentioned above, it's not surprising that the markets had a mixed reaction as they processed the flood of information. 

Wall Street indices, such as the S&P 500 and the Dow Jones Industrial Average, gained 0.1% and 0.25%, respectively, while the Nasdaq ended slightly below the neutral mark. Meanwhile, the 10-year Treasury yield remained around 4.7% ahead of Friday's December jobs report. (Source: Yahoo Finance)

Conclusion

In conclusion, despite the US markets being closed today for the national day of mourning for former President Jimmy Carter, several significant developments have emerged. Positive labour market data, including a drop in unemployment claims and an increase in job openings, suggest continued stability, influencing expectations for the Federal Reserve’s upcoming decisions. Meanwhile, geopolitical and economic concerns, such as President Biden’s AI chip export restrictions and President-elect Trump’s potential tariff plans, add to market uncertainty. These factors, combined with mixed market reactions, leave investors anticipating further economic signals in the coming weeks.