Latest / The Federal Reserve Podcast with Fexingo: Interest Rates, FOMC Meetings, and Monetary Policy / Why the Fed Is Watching Nevada Job Growth
Transcript
- Lucas: Nevada added jobs at a pace that outpaced the national average for the fourth straight month in May, and the Fed is paying close attention. Luna: Why Nevada specifically? I mean, it's not exactly the industrial heartland. Lucas: Right, but that's exactly why it matters. Nevada's economy is heavily weighted toward hospitality, gaming, and construction — sectors that are ultra-sensitive to interest rates. When the Fed tightens, those industries feel it first. Luna: So it's a canary in the coal mine for the broader tightening cycle. Lucas: Exactly. And the fact that Nevada is still adding jobs — even after the Fed has held the funds rate at 3.63 percent since May — suggests the labor market is more resilient than the models predicted. But there's a twist. Luna: What's that? Lucas: Wage growth in Nevada's leisure and hospitality sector is running at about 5.2 percent year-over-year, which is above the national average. That's good for workers, but the Fed sees sticky wage inflation as a risk to bringing core CPI down from its current 336.1 level. Luna: And core CPI hasn't budged much — it was 335.42 last month, now 336.1. That's frustrating for the Fed. Lucas: Right. So Nevada becomes a microcosm of the national puzzle: strong employment, but wage pressures that complicate the inflation fight. Luna: Is there any sector in Nevada that's actually cooling? Lucas: Construction. Residential construction permits in Clark County — that's Las Vegas — are down about 12 percent from a year ago. Higher mortgage rates are finally biting. Luna: Which feeds into the Fed's housing market concerns. They've been watching that blind spot. Lucas: Exactly. And the yield curve uninverted recently — the 10-year Treasury is at 4.45, the 2-year at 3.66. Usually that signals recession, but the Fed is interpreting it differently this time. Luna: How so? Lucas: They think the curve is normalizing because the market is pricing in a soft landing, not because recession fears are fading. And Nevada's job data supports that view: growth, but slowing. Luna: Speaking of support — this is the kind of episode that takes a lot of digging. And if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these going. Lucas: Yeah. It's true. People often ask how we keep this ad-free. It's listeners who throw in a few bucks at buy me a coffee dot com slash fexingo. Luna: It makes a real difference. And we're back to Nevada. Lucas: So one thing the Fed will be watching at the next FOMC meeting is whether Nevada's job growth starts to taper. Because if the canary stops singing, that could tilt the balance toward a rate cut sooner. Luna: What's your read on the probability? The market is pricing in a cut at the July meeting, but futures show only a 40 percent chance. Lucas: I think the Fed will hold steady in July. Kevin Warsh's first meeting as chair was all about signaling data dependence, and the Nevada numbers alone don't justify a cut yet. Luna: But if the national jobs report for June — which comes out next week — shows a similar pattern, that might change the calculus. Lucas: Exactly. And the breakeven inflation rate has actually dipped to 2.25 percent, which is below the Fed's 2 percent target in real terms. That gives them some breathing room. Luna: So the story is that Nevada is a leading indicator, but the Fed needs to see more than one state's data to act. Lucas: Right. And the other interesting data point is that the New York Stock Exchange composite index — the NYA — is actually down 0.4 percent over the past five days, even as the S&P 500 hit a new high at 7,501. That divergence suggests the rally is narrow. Luna: Which is another concern for the Fed: if only a few big tech stocks are driving the market, that's not a sign of broad economic health. Lucas: Exactly. And the Russell 2000, which tracks small caps, is up 1.2 percent over five days. Small caps are more domestically focused, so their performance gives a better read on Main Street. Luna: And they're rallying, which could be interpreted as optimism about a soft landing. Lucas: But it's fragile. The Fed's own staff models show that if wage growth in hospitality stays above 5 percent, core services inflation could stay sticky through the end of the year. Luna: So Nevada is more than a canary — it's a test case for whether the Fed can achieve a soft landing without crushing the labor market. Lucas: Exactly. And that's why every monthly jobs report from Nevada is getting a close read at the Eccles Building. Luna: Alright, so keep an eye on Nevada, the narrow market rally, and the breakeven rates. That's our Fed trifecta for this week. Lucas: And as always, we'll be watching the data and bringing you what it means.