Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / How Jobless Claims Hit 187k and Yields Still Fell
Transcript
- Lucas: Initial jobless claims just hit a hundred and eighty-seven thousand. That's the lowest weekly print since the nineteen-sixties. And yet, over the same five trading days, the ten-year Treasury yield fell twelve basis points to four point six percent. Luna: So the labor market is flashing red hot — or maybe blue cold, depending on your metaphor — and the bond market is basically saying, 'I don't believe it'. Lucas: Exactly. The claims number itself is shocking: down twenty-two thousand from the prior week. But the unemployment rate is still four point two percent, which isn't historically tight. So what changed? Possibly a lot of seasonal adjustment noise, or maybe employers are just holding on to workers. Luna: And the bond market's reaction — falling yields — would normally mean investors expect weaker growth or lower inflation. Which one is it? Lucas: Look at the ten-year breakeven inflation rate. It dropped to two point two one percent from two point two six a week ago. That suggests the bond market thinks inflation expectations are cooling. That's consistent with the CPI and core CPI both edging down in June. Luna: But if the economy is growing at two point one percent annualized — and that's the real GDP number from the first quarter — then how cooling can inflation be? We've got a solid growth rate, low jobless claims, and the Fed sitting at three point six three percent. Lucas: The Fed's holding because they want to be sure inflation is sustainably coming down. Chair Warsh has been dropping phrases like 'patient' and 'data dependent' — the market reads those as no move for at least a couple of meetings. But the bond market is pricing in something else: maybe a rate cut later this year. Luna: Let's get concrete: the two-year yield also fell about eleven basis points over the week. The two-year is the most sensitive to Fed expectations. So the market is actually betting that the Fed will have room to ease. Lucas: Yeah, and that's the puzzle. If jobless claims are this low, why would the Fed ease? Unless the bond market thinks this spike in claims is a fluke — or that the GDP rebound is a one-quarter wonder, not a trend. Luna: There's also the tariff story. Singapore surprised everyone by tightening policy because of rising oil prices. And Trump's new tariff on generic drugs — even though it's phased in slowly — adds a supply shock risk. Import costs from China just hit their highest since 2008. Lucas: So the bond market might be looking at those global headwinds and thinking, 'The labor market looks great now, but that could change in six months.' The lagged effects of the rate hikes we've already had — they take a while to fully hit. Luna: That's the classic soft landing worry: you keep rates high, inflation falls, but then the labor market cracks. Right now, the claims data says the labor market is stronger than ever, but the bond market is positioning for a crack. Lucas: Which brings us back to the Fed. They have to weigh conflicting signals. Real GDP growth bounced from 0.5 percent to 2.1 percent — that's a huge swing. But that's first-quarter data. More recent reads, like the claims drop, suggest momentum might be picking up again. Luna: You know, this is exactly the kind of macro puzzle that makes you want to dig deeper and keep following the data. And I think for a lot of our listeners, that's why they tune in. Lucas: Absolutely. We deliberately keep this show free of ads — no sponsors interrupting the analysis. If you find these conversations useful and want to support that ad-free choice, you can find us at buy me a coffee dot com slash fexingo. No pressure, genuinely — just a way for listeners who value the show to chip in. Luna: Even a small gesture helps keep the lights on. And we appreciate every single one of you who listens. Now, back to the data: so are we heading for a Fed cut or not? Lucas: Based on the Fed funds futures, the market sees about a 40 percent chance of a cut by December. That's up from 25 percent a month ago. But the Fed's own dot plot from June showed no cuts this year. So there's a real divergence. Luna: What would make the Fed move? I'd look at the core PCE. It's at 130.1, still creeping up month over month. But if it starts to decline, and if jobless claims stay in the 180-200 range, the Fed might feel confident enough to hold. Lucas: I think they need to see a sustained drop in core inflation — maybe three to six months of clear cooling — before they even talk about easing. Right now, they're in wait and see mode. The bond market is impatient, but chairs aren't. Luna: And on the other side, if claims spike back up to 250 or 300, that changes everything. But a one-week drop to 187 — is that noise or signal? Lucas: Claims data is notoriously volatile week to week. The four-week moving average smoothed out is still around 200. That's low but not unprecedented. I'd want to see another week or two of sub-190 before calling it a trend. Luna: So we're in a waiting game. The bond market is betting on a slowdown, the labor market is defying gravity, and the Fed is holding its cards close. Lucas: It's a fascinating moment. If the economy keeps growing at 2 percent plus, inflation stays around 2 percent, and jobless claims remain low, then the soft landing is real. But the bond market's vote of no confidence suggests many investors are skeptical. Luna: And those global factors — tariffs, oil, Singapore — they add risk that the domestic data doesn't capture. The bond market might just be seeing something we're missing. Lucas: That's why we keep coming back every day. These puzzles don't have easy answers. Thanks for spending time with us on this one.