Latest / The Federal Reserve Podcast with Fexingo: Interest Rates, FOMC Meetings, and Monetary Policy / What the Fed Makes of the Job Openings Surge
Transcript
- Lucas: So job openings surged to 7.6 million in April, the highest in nearly two years. That's the headline from the JOLTS report Tuesday, and I think it tells us more about where the Fed is stuck than where the economy is booming. Luna: Stuck is an interesting word. You mean stuck between wanting to cut rates and not being able to? Lucas: Exactly. When you see openings spike like that — up from about 7.1 million in March — it suggests employers are still competing for workers. And that competition keeps pushing wage growth up, which feeds into services inflation, which is the part of the CPI basket the Fed watches most closely now. Luna: And we got the ADP private payrolls number yesterday too — 122,000 in May. That's above the consensus estimate of around 100,000. Lucas: Right. So two labor market data points in the same week, both pointing in the same direction: the labor market is not cooling off as quickly as the Fed hoped. Now, 122,000 is not a boom number — it's about trend, maybe a little above — but it's definitely not a number that screams 'cut rates now.' Luna: And the market's reaction was muted. The ten-year yield actually ticked up a few basis points after the JOLTS number, settling around 4.49 percent. Lucas: That's the other piece. The bond market is basically saying: 'We hear you, data, but we're not re-pricing rate cuts yet.' The fed funds effective rate is at 3.63 percent, and the market has been pricing in maybe one cut by year-end. This JOLTS number doesn't change that calculus much. Luna: But let's step back. 7.6 million openings in a labor force of around 167 million — that's about 4.5 openings per unemployed worker. Pre-pandemic that ratio was around 1.2. So we're still in a very tight labor market by historical standards. Lucas: And that's the crux of the Fed's dilemma. Chair Powell and other speakers have been consistent: they need to see sustained progress on services inflation excluding housing. That category is heavily influenced by labor costs — think healthcare, hospitality, personal services. As long as employers are bidding up wages to fill those 7.6 million openings, that progress is going to be slow. Luna: So the Fed is essentially data-dependent on the labor market now, not just on CPI or PCE. Lucas: Exactly. And the Core PCE, which came in at 2.8 percent year-over-year in April, is still above the 2 percent target. The three-month annualized rate is around 2.7 percent. That's not terrible, but it's not low enough to declare victory. Luna: Right. And the ADP report also showed that wage growth for job stayers was 5.0 percent year-over-year, and for job switchers it was 7.2 percent. That's sticky. Lucas: Very sticky. And that's really the story here. The Fed can look at headline inflation cooling a bit — the ten-year breakeven inflation rate is down to 2.38 percent from 2.39. But the underlying wage-driven inflation in services is what's keeping them on hold. Luna: Interesting. So when you look at the JOLTS number, it's not just about openings. It's about what those openings imply for wages, and what wages imply for the Fed's ability to cut. Lucas: Precisely. And here's a subtle point: the composition of openings matters. In April, the biggest increases were in leisure and hospitality, and in professional and business services. Those are two very different sectors. Leisure and hospitality tends to be lower-wage, more interest-rate sensitive. Professional services tends to be higher-wage, less sensitive to rate changes. Luna: So the mix might actually make the Fed more cautious? Because the high-wage openings could signal sustained demand that keeps core services inflation elevated. Lucas: That's exactly the worry. If the surge is in higher-wage sectors, those wage increases have more passthrough to services prices. And the Fed's models still suggest that the neutral rate — the so-called R-star — has moved up. So even if they cut, they might not be as stimulative as they'd hope. Luna: Let's talk about the other headline this week: the US proposing fresh tariffs on 60 economies. How does that interact with the labor market picture? Lucas: It's another complication. Tariffs are inflationary in the short run — they raise input costs. If the Fed sees tariffs adding to goods inflation, they might worry that it gives them less room to cut even if labor market softens. But right now, the labor market is not softening. So it's a double whammy. Luna: And the Iran situation — energy prices are still elevated. The euro zone inflation hit 3.2 percent in May partly due to energy costs. That's a global headwind. Lucas: Yes. But the US is a net energy producer now, so the passthrough is smaller here. Still, gasoline prices at the pump do feed into inflation expectations. And the Fed cares about expectations. Luna: So what does all this mean for the June FOMC meeting? It's in two weeks. Lucas: I think they hold rates steady. The data we have — strong JOLTS, decent ADP, sticky Core PCE — none of it argues for a cut. And the Fed will want to see at least a couple more months of data to be confident that labor market is cooling sustainably. Luna: So the next big data point is the official jobs report on Friday. If that comes in around the ADP number or higher, the hold is locked in. Lucas: Exactly. And if it comes in weaker — say below 100,000 — then maybe the market starts pricing in a September cut. But I doubt it changes the June decision. Luna: This is the kind of granular analysis that actually helps make sense of the headlines. I think a lot of our listeners appreciate that we don't just say 'the Fed is data-dependent' — we show what data and why. Lucas: That's the whole point of this show. And if today's episode helped clarify why a single JOLTS number matters for your mortgage rate or your business's cost of capital, that's exactly what we're here for. Luna: And the way we keep doing this without ads getting in the way is listener support. If you find value in breaking down these numbers every week, you can keep it going by buying us a coffee. Lucas: The link is simple: buy me a coffee dot com slash fexingo. That's all lowercase. And it genuinely makes a difference — helps us keep the podcast ad-free and focused on the data. Luna: Okay, back to the labor market. One more thing: quits rate. In the JOLTS report, the quits rate held at 2.2 percent. That's still above pre-pandemic levels, which suggests workers are confident enough to leave jobs. Lucas: That's a good sign for wage pressure. When workers quit, they typically move to higher-paying jobs. So even if hiring slows, the churn itself pushes wages up. The Fed watches quits almost as closely as openings. Luna: So all signs point to a labor market that is resilient, not collapsing. And that means the Fed can afford to wait. Lucas: They have the luxury of patience. Inflation is not accelerating, but it's not falling fast either. And as long as the labor market holds up, there's no urgency to cut. The risk of cutting too early and reigniting inflation still outweighs the risk of cutting too late. Luna: Which is exactly the message the Fed has been telegraphing. Lucas: Right. So for listeners: if you're wondering when rates might come down, watch the weekly jobless claims, watch the quits rate, and watch the services CPI ex-shelter. Those are the leading indicators now. Luna: And the next big test is Friday's payrolls. We'll be watching. Lucas: We will. Thanks for joining us on this deep dive. Keep your eyes on the data, not the headlines.