Latest / The Federal Reserve Podcast with Fexingo: Interest Rates, FOMC Meetings, and Monetary Policy / Job Openings Surge to 7.6 Million What the Fed Sees Now
Transcript
- Lucas: So the Labor Department put out the JOLTS report this morning — job openings in April hit 7.6 million. That's the highest we've seen in nearly two years. Luna: That is a big number. I think the whisper number was maybe 7.2, 7.3. So it's a clear beat. Lucas: Right. And what's interesting is where the openings are concentrated. It's not just hospitality and retail bouncing back from winter. We saw a real pickup in professional and business services, manufacturing, even construction. Luna: Construction is interesting because we've had higher mortgage rates all year. You'd think that would cool demand for new builds. Lucas: You'd think. But multifamily is still going strong in a lot of metros, and there's some infrastructure spending still filtering through. The point is — this is a broad-based tightness, not a sector-specific blip. Luna: And the Fed is watching this number closely. Chair Powell has said multiple times that the labor market is the key to the next rate move. Lucas: Right. Because if you look at the other data — core PCE came in at 3.3 percent annualized in April, exactly as expected. The ten-year breakeven inflation rate ticked up to 2.40 percent. So inflation isn't falling fast, and now the labor market is re-accelerating. Luna: That's a tough mix for the Fed. They've held the fed funds rate at 3.63 percent since May. The market was starting to price in a cut later this year. This JOLTS number probably pushes that further out. Lucas: Yeah, I think the immediate reaction in fed funds futures was telling — the probability of a cut in September dropped about ten percentage points. The narrative is shifting back to 'higher for longer'. Luna: But let's dig into the wage angle. If there are 7.6 million openings and still only about 6.5 million unemployed workers, that's a gap of over a million. That puts upward pressure on wages. Lucas: Exactly. The quit rate has been stable around 2.2 percent, which is healthy but not signaling panic. But the hires rate actually edged up a bit. Companies are still trying to fill roles, and they're competing on salary. Luna: So what does that mean for the Fed's inflation fight? If wages are going up 4 to 5 percent annually, that feeds into services inflation — which is the stickiest component. Lucas: Right. And the Fed's preferred measure, core PCE, has been hovering around 3.3 percent for three months now. That's well above the 2 percent target. So you have a labor market that's generating wage pressure, and energy costs are up because of the Iran war. The average household is paying about $450 more per year on gas and energy, according to a recent estimate. Luna: That's a double whammy for the consumer. But also for the Fed's calculation — because energy inflation is often transitory, but wage inflation tends to be sticky. Lucas: Exactly. The Fed can look through a one-time energy spike if it doesn't feed into expectations. But if workers start demanding higher wages to compensate for higher gas bills, that's how you get a wage-price spiral. Luna: So the JOLTS number today is really a signal that the labor market hasn't cooled enough to let the Fed cut. And maybe it's even heating up again. Lucas: That's the worry. I think the Fed will want to see at least a couple more months of data before they even hint at easing. The next FOMC meeting is June 16-17. I'd expect them to hold steady and maybe revise their dot plot projections higher. Luna: Speaking of projections, one thing we haven't talked about is the quits rate. It's been pretty flat, around 2.2 percent. That's not workers feeling confident enough to jump ship. It's more like companies are desperately trying to hire but workers are staying put. Lucas: Yeah, the quits rate is actually a bit below pre-pandemic levels. That suggests workers are cautious. They remember the last few years — inflation eroding purchasing power, layoffs in tech. So they're holding onto their jobs. Luna: Which ironically creates less churn and less upward wage pressure. But the sheer number of openings still forces employers to offer more. Lucas: Right. So it's a weird equilibrium. And the Fed has to navigate that. They don't want to cause a recession by hiking too much, but they also can't afford to let inflation re-anchor at a higher level. Luna: Honestly, if making sense of this labor market with us has been useful, consider throwing a few bucks our way. It's what keeps this podcast independent and ad-free. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we really appreciate that. It helps us keep digging into these numbers every week. Anyway, back to the data — one other thing I noticed in the JOLTS report was the regional breakdown. Luna: Oh, tell me. Lucas: The South had the biggest increase in openings, especially in Texas and Florida. That's where a lot of population growth has been, and where the energy sector is concentrated. The Iran war has boosted oil prices, so those states are seeing a mini-boom in hiring. Luna: So the war is actually creating jobs in some regions, even as it raises costs for consumers nationwide. Lucas: Exactly. That's the kind of asymmetry the Fed has to account for. National data can mask a lot of variation. The Fed's job is to set one interest rate for the whole country, but the economy is not one big smooth machine. Luna: And they have to watch inflation expectations too. The ten-year breakeven is at 2.40 percent, which is above the Fed's target but not alarming. If that starts moving toward 2.5 or 2.6, then they have a problem. Lucas: Right. So the JOLTS number today is a reminder that the labor market is still tight, wage pressures are there, and the Fed can't declare victory. The market might have to wait longer for those rate cuts. Luna: I think the key question for the next few months is whether this is a one-month spike or a trend. If job openings stay above 7.5 million, the Fed will stay on hold. Lucas: And if they start falling back toward 7 million, then maybe the door opens for a cut in December or early next year. But for now, the data says: patience. Luna: Alright, let's keep an eye on the next JOLTS release next month. And we'll be watching the CPI print later this week too. Lucas: Absolutely. Thanks for listening, and we'll talk to you soon.