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The US Federal Reserve is in an extraordinarily difficult position. American inflationary pressures still linger. And if the Fed – as it's known – cut interest rates, it could stimulate demand in everything from consumer goods to housing, and that could further stoke inflation, alongside tariff-induced inflation. At the same time, employment growth has stalled, which may push unemployment higher. This is best encapsulated by the weakened jobs market. Analysts say uncertainty around the Trump Administration's tariff policy has made bosses reluctant to hire. But while employment growth evaporates and the economy slows, inflation continues to rise. And, economists say, a fair chunk of the upward pressure on prices is coming from tariffs. The world's biggest economy appears trapped between a rock and a hard place. The Federal Reserve Chair Jerome Powell said as much at the Jackson Hole Symposium on August 22, "The downside risks to employment are rising and if those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment."
The great concern for the US economy is stagflation - an economic term for rising unemployment and inflation. In this situation it's very difficult for a government or central bank to execute any effective policy to resolve the situation. An interest rate cut, for example, may help with jobs growth but it would be like pouring fuel onto an inflation fire. It's all taking a toll on the value of the US dollar, which steadily declining since Donald Trump took office in January. The US dollar index, which tracks the value of the US dollars against a basket of currencies, has fallen from 109.6 in mid-January, to around 97 now. That's an 11 per cent fall, or a "correction" in the world's reserve currency. But the US President Donald Trump said earlier this year the declining value of the dollar is all part of his plan. Analysts say Donald Trump's unease with the value of the dollar has become plain to see. For Donald Trump, a weaker US dollar solves many problems, including bringing in more tariff revenue. That's because more US dollars are needed for the same imports. A lower dollar also helps reduce US debt. But analysts warn a weaker US dollar also adds to inflationary pressures in the economy -- because it lifts the prices of imported goods, bringing the prospect of stagflation into sharp focus. The US Federal Reserve's not the only one treading nervously on a tightrope. In an increasingly uncertain world, the desire for investors and novices alike to find a safe haven for their money has grown exponentially. That's pushed the price of gold up to record highs and analysts insist the value of the precious metal is only going to increase. They point to so-called the "fundamentals" – that is, a well-argued case to logically explain the demand surge in gold. It includes strong central bank demand, and investors moving gold into their portfolios to gain exposure to the precious metal as they seek out the most traditional of safe havens. It's latest rise to dazzling heights has those responsible for billions of dollars quite nervous. "It's telling me there's uncertainty," London City investment strategist, Sahil Mahtani said. That uncertainty has caught the attention of Australia's Reserve Bank, and its chief economist. "We don't see anything immediate in front of us but that's not to say something couldn't develop, and if something develops that's when we'll respond," Sarah Hunter told The Business. Trillions of dollars across the globe stand ready for more volatility.
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