Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How the Hot Jobs Report Is Stalling Fed Rate Cuts
Transcript
- Lucas: Friday's jobs report was a gut check for anyone hoping the Fed would start cutting rates soon. Nonfarm payrolls came in well above expectations, and the unemployment rate ticked lower. The market's immediate reaction? Stocks sold off, bond yields popped, and the probability of a rate cut at the June FOMC meeting dropped to basically zero. Luna: I saw the headline — 'Hot jobs report puts Fed cuts further out of reach as Chair Warsh faces policy tests.' It feels like the same story we've been hearing for months, but the numbers are actually getting stronger, not weaker. Lucas: Exactly. And I think that's the part that's easy to miss if you're just watching the inflation headlines. CPI is still running above the Fed's target — the latest reading had all-items CPI at 332.4, up from 330.29 a month earlier. Core CPI, which strips out food and energy, is even higher at 335.4. So you've got inflation that's not coming down as fast as hoped, and a labor market that's still adding jobs at a solid clip. That combo is basically a green light for the Fed to stay on hold. Luna: And that directly affects our listeners — anyone with a mortgage, anyone thinking about buying a house, anyone with cash sitting in a savings account. The longer rates stay high, the more it costs to borrow, and the more your cash earns — but also, the more inflation eats away at it. Lucas: Right. And if today's conversation helps you think about your own money decisions, that's exactly why we do this. The show stays ad-free because of listener support — people who find it useful and want to keep it that way. If that's you, you can throw a few bucks in the tip jar at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the conversation going. Luna: Yeah, it's a small thing that makes a big difference. And we're grateful. Lucas: Alright, so let's dig into what the jobs report actually showed. The headline number was 339,000 new jobs in May, well above the consensus estimate of around 190,000. The unemployment rate fell to 3.6% from 3.7%. Wage growth moderated slightly, but still came in at 4.2% year-over-year. That's above the Fed's comfort zone, especially when productivity isn't keeping pace. Luna: So the labor market is still tight. But the Fed has said they need to see a sustained softening in the labor market to be confident inflation is coming down. This report says the opposite. Lucas: Correct. Fed Chair Kevin Warsh, who took over in April, has been pretty clear that he's data-dependent, and this data doesn't support cutting. In fact, some Fed watchers are now talking about the possibility of another rate hike, though I think that's unlikely. The Fed funds rate is at 3.63% effective, which is already restrictive. The question is how long they hold here. Luna: The bond market seems to be pricing in a longer hold. The 10-year breakeven inflation rate is around 2.36%, which is actually pretty stable. That suggests bond investors don't see inflation spiraling, but they also don't see it dropping quickly. Lucas: Right. And the 10-year Treasury yield moved up about 10 basis points after the jobs report. That directly feeds into mortgage rates, which have been hovering around 7% for a 30-year fixed. For someone looking to buy a home, that's a real headwind. And for anyone with a variable-rate loan, it's a reminder that rates aren't going down anytime soon. Luna: There's also an interesting effect on the stock market. The S&P 500 is down about 2.8% over the past five days, and the NASDAQ is down over 5%. A lot of that is tied to rate expectations — higher for longer means higher discount rates on future earnings, which hits growth stocks especially hard. Lucas: And you see that in the tech-heavy NASDAQ. But the Dow, which is more industrial and value-oriented, was only down 0.4% over the same period. So the market is rotating — investors are favoring companies that can generate cash flow now, not just promises of growth five years out. Luna: That rotation is actually a pretty good lesson for personal finance. If you're invested in a target-date fund or a broad index, you're exposed to that shift. But if you're picking individual stocks, you have to think about how rate expectations affect different sectors. Lucas: Exactly. And it's not just stocks. Commodities are getting hit too. Gold is down about 2.8% over the past five days, and the gold miners index, GDX, is down a whopping 9%. Silver is down over 8%. When real rates stay elevated, precious metals lose some of their luster because they don't pay a yield. Luna: So the hot jobs report is really a reset for a lot of asset prices. And for the average person, it means the cost of borrowing isn't going down soon, but the return on cash — like high-yield savings or money market funds — stays attractive. The Fed's interest on reserve balances is 3.65%, so banks are paying depositors around 4-5% on savings accounts. Lucas: That's the silver lining. But the key takeaway is that the Fed is in no hurry to cut, and that has ripple effects across your entire financial life. Whether you're borrowing, saving, or investing, the higher for longer rate environment is something you have to plan for. Luna: And as we head into the summer, we'll have more data — next week's CPI report, then the PCE price index. Those will be the real tests. If inflation doesn't moderate, the Fed stays put, and maybe even talks about hiking again. Lucas: Exactly. So the bottom line: the jobs report makes it clear that the Fed's first cut isn't coming in June. Maybe not in July either. The market is pricing in a September cut at around 50% probability, but that's highly dependent on the next couple of inflation prints. Stay tuned, and keep an eye on your own finances in the meantime. Luna: Good advice. And if you found this helpful, consider supporting the show at buy me a coffee dot com slash fexingo. We'll be back next time with more on how inflation is moving your money.