Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The JOLTS Blip That Changes the Rate-Cut Timeline
Transcript
- Lucas: So the JOLTS report landed this morning, and the headline number is a stunner: 7.6 million job openings in April. That's up from 6.9 million in March — a 10.6 percent jump in a single month and the highest reading in nearly two years. Luna: I saw that and immediately thought — is this real? Because we've been watching openings grind lower for most of 2025, and suddenly they pop back above seven and a half million? Lucas: Right. And it comes right as the Fed is sitting on a fed funds rate of 3.62 percent, with core PCE still sticky at 3.3 percent. If you're on the FOMC, this JOLTS number is the worst possible timing. It suggests the labor market is re-tightening, which gives you less cover to cut. Luna: But the unemployment rate didn't budge — still 4.3 percent in April. How do you get more openings without more unemployed workers? Lucas: That's the puzzle. The ratio of openings to unemployed workers jumped from about 1.05 to 1.2. So for every person looking for a job, there are now 1.2 openings. That's back to levels we saw in mid-2023 when the labor market was genuinely hot. Luna: And the Fed's dual mandate — maximum employment and price stability — those two goals are pulling in opposite directions again. Full employment looks solid, so the inflation side gets more weight. Lucas: Exactly. Chair Powell has been signaling patience all spring. But markets had been pricing in a first rate cut by September. After this JOLTS number, I think that timeline slips. Maybe November, maybe even 2027. Luna: Let's dig into the industry breakdown. Was this broad-based or concentrated in a couple of sectors? Lucas: Most of the spike came from leisure and hospitality — that sector added 230,000 openings alone. That's a third of the total increase. And if you look at that industry, it's still recovering from pandemic-era staffing shortages, so it's volatile month to month. Luna: So it might be a statistical bounce rather than a genuine re-acceleration. Seasonal adjustment could also be playing tricks — April often sees a big adjustment for spring hiring. Lucas: That's the bull case for the Fed looking through this number. But then you look at the quits rate, which ticked up slightly to 2.1 percent. Workers are feeling confident enough to leave jobs, which usually correlates with wage pressure. Luna: And average hourly earnings are already at $37.40, up from $37.35 last month. Not a huge acceleration, but the trend is still upward. Lucas: Right. So the labor market is sending mixed signals. Openings up, quits up slightly, hires flat, layoffs low. The Beveridge curve — the relationship between openings and unemployment — is shifting again. It suggests structural changes in how firms hire. Luna: What about the inflation side? Core PCE at 3.3 percent, breakeven inflation at 2.40 percent — markets are expecting inflation to settle above the Fed's 2 percent target. Lucas: The ten-year breakeven actually ticked up from 2.38 to 2.40 in the last few days. That's still below the peaks we saw in 2022, but it's been stubbornly above 2.3 for six months. The market is telling the Fed: 'We don't think you're going to hit your target anytime soon.' Luna: And with the Iran war still pushing energy costs higher — that $450 per household figure from last week — headline inflation isn't coming down fast either. Lucas: So the Fed is stuck between a labor market that's flashing re-tightening and an inflation rate that's sticky. The fed funds rate at 3.62 is already restrictive, but cutting now risks reigniting inflation expectations. Luna: One thing that stood out to me is the JOLTS data came out at the same time as eurozone inflation hitting 3.2 percent, driven by energy. Global central banks are all in the same boat. Lucas: That's a great point. The ECB is dealing with the same energy shock. So even if the Fed wanted to cut, they'd be doing it against a backdrop of global inflationary pressure. That makes it harder to justify. Luna: Let's talk about the bond market reaction. The two-year yield actually ticked up slightly today, to 3.62 — that's exactly the fed funds rate. The ten-year slipped to 4.45. The curve is still inverted, but less so. Lucas: The two-year is basically saying: 'The Fed is on hold.' The ten-year is more about long-run growth expectations. The spread is 83 basis points negative. That's not flashing recession anymore — it's more like a neutral-ish signal. Luna: But if the Fed doesn't cut, and inflation stays above 3 percent, real rates become more positive. That could tighten financial conditions further. Lucas: Right. The real fed funds rate — using core PCE as the deflator — is about 32 basis points. That's not deeply restrictive. But if nominal rates stay here and inflation drifts down to 3 percent, the real rate goes to 62 basis points. That starts to bite. Luna: So what's your base case for the next FOMC meeting? They meet again in mid-June. Lucas: No cut. They'll acknowledge the JOLTS spike but probably chalk it up to volatility. The dot plot might show one cut for 2026, but I think they'll push it to the fourth quarter. The data just doesn't support a July or September move. Luna: And if we get another strong jobs report on Friday? Nonfarm payrolls are expected to be around 180,000. Lucas: If we get 200,000-plus and JOLTS stays high, then the narrative shifts. Markets might start pricing in no cuts in 2026. The futures market is already at a 45 percent probability of a cut by December. That could drop to 30 percent. Luna: Speaking of making sense of this data — if walking through the economy with us has made something click, these episodes stay ad-free because of listener support. Buy me a coffee dot com slash fexingo is the easiest way to keep that going. Lucas: Yeah, a coffee's worth it for breaking down JOLTS and the Fed. Really appreciate everyone who chips in. Luna: Alright, back to the numbers. Let's also look at what this means for small caps. The Russell 2000 was flat today, up just 0.2 percent for the week. That suggests investors aren't buying the re-acceleration story. Lucas: Small caps are more rate-sensitive and more levered to domestic growth. If the Fed stays higher for longer, they suffer. The Russell is at 2,925, still below its 2021 highs. The big rally we saw in February and March has mostly stalled. Luna: So the JOLTS number today reinforces the 'higher for longer' trade. Large cap tech has been able to ignore rates because of AI capex, but the rest of the market is waiting for a cut. Lucas: Exactly. The S&P 500 at 7,610 is up 1.2 percent this week, driven by mega-cap tech. The Nasdaq at 27,114 is up 1.6 percent. But it's a narrow rally. The equal-weight S&P is basically flat. Luna: Which brings us back to the Fed's dilemma. If they cut to help Main Street, they risk fueling asset prices in a market that's already expensive. If they don't cut, Main Street keeps waiting. Lucas: That's the bind. And today's JOLTS number just tightened the knot. The next big data point is Friday's payrolls. If that comes in hot, the rate-cut narrative could officially die for 2026. Luna: And then the question becomes: what breaks first? The labor market? Consumer spending? Or does inflation finally start to cooperate? Lucas: That's the million-dollar question. The consumer has been resilient, but savings are dwindling. The savings rate is below 4 percent. Eventually, something has to give. Luna: We'll be watching Friday closely. Thanks for sticking with us through all the data. Lucas: Yeah, it's a lot. But if you can parse these reports, you're way ahead of most market participants. We'll do it again tomorrow.