Labor Market Remains Hot

Fed Rate Hike Odds Rebound [0:00]

• A recent "hot" jobs report has significantly increased market expectations for a Federal Reserve rate hike in September.
• This report counteracts earlier signals from Fed official Waller, who had suggested holding rates constant.
• Market probability for a September rate hike has risen from around 50% to 60%.

  "so we actually had a relatively hot jobs report today and in in a sense yesterday we had one of the members of the federal reserve waller he came out and said that he was more so leaning in the direction of holding rates constant"

Market Uncertainty and Stakes [2:11]

• The current market environment, with two weeks until the next Fed meeting and roughly 50/50 odds for a rate hike, is historically unusual.
• Typically, market expectations are much more solidified (80-90%) closer to a Fed meeting.
• This uncertainty heightens the impact of each new data point on market movements.

  "i think what it essentially does is it it almost makes the stakes higher in every single data point that happens because there's just a lot of uncertainty"

The Long End of the Yield Curve [3:42]

• If the Fed holds rates steady, the long end of the yield curve is expected to continue rising.
• Raising rates is seen as an effective way to combat rising long-term yields, but this is politically unpalatable for the current administration.
• The Federal Reserve, theoretically independent, faces pressure regarding its rate decisions.

  "if they don't raise rates you'll just see the long end of the old curve continue to go higher"

Shifting Fed Dynamics [4:35]

• The Federal Reserve under Powell saw fewer dissenting voices, with a focus on consensus.
• Recent meetings have shown an increase in dissents, suggesting a more independent stance among Fed members.
• This trend of increased dissent is likely to continue.

  "if you look at the last fed meeting there were three dissents right three people wanted to raise rates"

Labor Market Strength Confirmed [5:23]

• The unemployment rate remains historically low at 4.1%, indicating a strong labor market.
• While a low unemployment rate doesn't preclude future deterioration, current market concern is focused on inflation, not a weak labor market.
• Non-farm payrolls, previously reported as negative, were revised to positive, further confirming labor market resilience.

  "so first of all you have the unemployment rate and and it's now back at it's still at four point one percent so again the labor market is historically fine"

Non-Farm Payrolls Revisions and Trends [6:38]

• The year-over-year change in total non-farm payrolls, which had approached recessionary territory, is now accelerating from its lows.
• The lowest point was 116,000 in December 2025, and it has since risen to 603,000.
• This trend clearly indicates an improving labor market.

  "when you look at at the employment level and and look at non-farm payroll last month it was actually negative but in the recent report it was revised back to being positive"

Average Hourly Earnings and Inflation Concerns [8:08]

• Average hourly earnings continue to climb, although year-over-year growth has been dropping.
• The pace of this decline is not seen as fast enough by the market, contributing to inflation concerns.
• Elevated oil prices (around $90/barrel) are expected to negatively impact future CPI reports.

  "one of the things that waller did say was he he said that that while he's leaning more towards holding rates constant it wouldn't take him it wouldn't take much for him to be in the other camp right of of a rate hike"

Bank of Japan and Fed Outlook [9:10]

• The Bank of Japan is expected to raise rates, potentially twice before year-end, bringing their rates to around 1.5%.
• The Fed is likely to raise rates once, with a second hike being less certain.
• The upcoming inflation report is seen as the decisive factor for the Fed's next move.

  "i would expect the bank of japan to raise rates okay so they're they're very very likely going to raise rates in fact the bank of japan might end up raising twice potentially before the end of the year"

AI's Dual Impact and Geopolitical Factors [12:03]

• Artificial intelligence is seen as disinflationary in the long term by reducing labor demand, but inflationary in the short term due to capital expenditure and demand for data centers.
• Geopolitical conflicts, particularly in the Middle East, are contributing to price hikes, especially in oil.
• These combined forces are expected to keep inflation sticky, preventing the Fed from cutting rates soon.

  "the same force ai that is causing more of a tightening of monetary condition policy and and financial conditions for the last several years will eventually be the same technology that leads to them loosening up"

Regional Unemployment and Labor Force Participation [15:10]

• Unemployment rate trends vary across different regions of the U.S., with some states seeing increases and others decreases.
• Recessionary conditions historically require a widespread increase in unemployment across the entire country.
• The labor force participation rate increased slightly, helping to keep the unemployment rate stable despite potential downward pressure.

  "if you look at the number the the the states where the unemployment rate is higher today than six months ago you can see it's only part of the country right"

Age Disparities in Unemployment [21:02]

• Unemployment rates differ significantly by age group.
• Younger individuals (16-19 years old) face a high unemployment rate of 14.1%, which recently increased.
• The strongest labor market is observed for those aged 25-54, with an unemployment rate of 3.6%.

  "if you were to look at just 16 to 19 year olds the unemployment rate is actually 14.1 percent and it actually jumped up from 12.1 to 14.1 just in the last month"

Global Rate Hikes vs. Fed Lag [24:42]

• Many countries, including the Euro area, New Zealand, and Australia, have already raised interest rates.
• The Federal Reserve is seen as lagging behind other major central banks in its rate-hiking cycle.
• Political pressure from the administration to lower rates may be influencing the Fed's decisions.

  "it's the fed that's behind right like it's the fed so this is one of those things where it's the the us is kind of holding off while a lot of other countries are already starting to hike in unison"

Strong Economy, Rate Hikes [26:31]

• The Atlanta Fed's GDP Now forecast for the third quarter is 4.7%, indicating a strong economy.
• In a strong economy with rising inflation and a stable labor market, the argument is for rate hikes, not cuts.
• The Fed needs to demonstrate its commitment to the 2% inflation target.

  "do you raise rates in a weak economy or a strong economy strong economy if gdp is 4.7 and inflation is starting to show signs of of coming back"

Job Openings and Quits [29:12]

• Job openings have slightly increased, and the job quits rate has stabilized at a baseline level.
• A significant drop in the quits rate, similar to prior recessions, is not currently observed.
• The number of states with rising unemployment rates has decreased, indicating a cooling trend in some regions.

  "job openings um actually i believe it it went up slightly yeah it did go up slightly"

Final Data Point: Inflation Report [30:22]

• The upcoming inflation report is the most critical data point before the next Fed meeting.
• A hot inflation report would strongly support a rate hike, while a cooler report might allow the Fed to hold rates steady or consider a later hike.
• The market's reaction will depend heavily on this inflation data.

  "the only other real data point we're going to get that's going to move the needle the main one is just where does the inflation report come in next week"