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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I’m Jeremy Owens. The moment Wall Street has been hoping for is here. The Federal Reserve is ready to cut interest rates, but the reason for the cut is less exciting. It’s because the U.S. job market is struggling and has been for a lot longer than we previously realized. So today, we’re going to talk about the Fed’s decision with economics editor Greg Robb. Then we’ll discuss the labor market and why our view of it has suddenly changed. Plus we’ll take a quick look at the news stories we’re watching right now and how they’ll affect your wallet.
Jerome Powell: The time has come for policy to adjust.
Jeremy Owens: With those words, Jerome Powell signaled to Wall Street and the world that the Fed is ready to cut interest rates. But that is only step one. Many questions remain. How big will the first cut be? Will there be subsequent cuts? Will interest rate cuts trigger higher inflation? These are some of the questions I had for Greg Robb after he flew back into D.C. from Jackson Hole, where he had the chance to talk to some of the greatest economic minds of our generation about what is happening to the U.S. economy right now.
Well, Greg, you were there at Jackson Hole as Powell was speaking last week. This is definitely a moment in history we’re going to come back and look at for years to come. Can you kind of let us know what it was like being there and just what Jackson Hole is and why this was so important?
Greg Robb: Sure. Every summer the Fed gets together at the end of August in Jackson Hole at a lodge in the base of the Grand Teton Mountains. And it’s a very exclusive guest list, about 200 people. And they get together with academics and other central bankers from around the world. And they talk about the latest research on monetary policy. And then they do a lot of hiking, a lot of eating, a lot of schmoozing. It’s a remarkable two days.
This time, Jerome Powell gave a speech on Friday and he wowed everyone by saying something that a central banker never usually says, which is, “I’m going to cut in September.” That was a remarkable thing, it kind of took the air out of the room. It was a headline around the world. And then Powell used the rest of his remarks to kind of lay out his version of what happened during the pandemic and how we ended up with inflation so high.
Jeremy Owens: And this was really key for him to look back at this kind of historically. I mean he called inflation transitory. That was wrong, and he was willing to admit that.
Greg Robb: Right. He called it good ship transitory, which was a real laugh. People were delighted by it. And he said, “Looking at the audience, I see a lot of other people that were on the ship too.” And that’s true. It wasn’t just the Fed. The Fed gets tarred with this, that they were wrong about inflation, and they were. But it’s true that they had a lot of company.
Powell used this opportunity to, for the first time, comprehensively step through where he thought the inflation came from. And then he talked a little bit about a review they’re going to do on the last five years. And he got a thunderous applause. I mean, I never heard that kind of applause there before. It was sort of a victory lap. Inflation’s come down from 9% to 2.5%, so it was a little bit of that. And people didn’t begrudge it at all, they kind of celebrated with him.
Jeremy Owens: But even with that, it was also a humility, like talking about where they were wrong and openness that we just don’t really often see from a Fed chair. Right?
Greg Robb: I mean, I guess I would hold your horses just a little bit. There’s a couple of things in there as a reporter, that sort of don’t add up a little bit. I think there’s more to be said. One of the key things he left out in my mind being objective about it as a reporter, is the Fed was doing what they call quantitative easing during this time. It was one of the controversial things that they did in the financial crisis in 2008. They were buying bonds in the market. And in 2008 when the Fed did it, many people thought there was going to be inflation afterwards. And it just didn’t turn out to be the case. But this time, they did QE and inflation came in spades. And Powell didn’t really address that at all. I’m still waiting for them to do that at some point. But to be fair, I mean Powell was talking from his point of view.
Jeremy Owens: No, though he did mention that the relief that was given during the pandemic was inflationary, right?
Greg Robb: Yeah. The Fed was putting a lot of money into the banking system. And that money was flowing into people’s pockets and that money was chasing too few goods. So, it was inflationary. They haven’t really sort of talked about it all that much. I would just say that there’s more to be written about this. But from Powell’s point of view, it’s a good way to kind of put down the marker of where the Fed sits. But like Powell said during his speech, he was being humble about things, he did say that people are going to be talking about this long after we’re all gone. And I think that’s true.
Jeremy Owens: Well, you mentioned that the response in the room was huge. What did you get on the sidelines of Jackson Hole, Greg? What did you take from your discussions with the other brilliant economic minds who were in Wyoming for this?
Greg Robb: Well, it was pretty interesting. It was a funny cocktail of people saying that fears of a recession are overblown. But at the same time, it was mixed with this sense of, “Yeah, and we’re watching the labor market like hawks.” But I do think that the people I talked to really had on their mind this sense of confidence that one of the things that can really make the economy do poorly now is if people have this sense like, “Oh God, the economy’s going to do poorly.” And at the same time though, they were saying a couple more of these bad job numbers and the Fed’s going to really take the foot off the break of the economy and really start to maybe get interest rates down.
So, I think we’re at that stage now. It’s an interesting stage of really watching the economy closely. You and I have talked before about this avalanche thing. That little snowball looks really small. But all of a sudden, and for some inexplicable reasons, it can start to really move downhill on its own.
Jeremy Owens: We saw the revisions last week of previous jobs numbers wiping away more than 800,000 jobs from previous reports between June ’23 and May ’24. It does seem that now inflation has taken such a backseat.
Greg Robb: Yeah, Jeremy, I would say that the inflation numbers are second class citizens now. Inflation is still pretty high, but it’s come down pretty well and it’s on a really good trajectory. So, the Fed has shifted its focus to the labor market. Powell said in his speech, it was kind of remarkable, he said, “We don’t want the labor market to slow anymore.” This is not your grandfather’s Federal Reserve that sort of thought that it was great if the labor market had trouble for a while ’cause it would bring inflation down. This modern day Fed understands that if there was a recession that many people would be losing their jobs. And it just really would be bad news. But they are watching the inflation numbers. They hope that they keep coming down. They’ve been on a good trajectory. If they sort of turn around abruptly, it’s going to be bad news.
Jeremy Owens: So now looking forward, Powell has signaled that we’re going to get a cut at the September meeting. And a lot of the talk has been, how big of a cut? I mean, normally we would expect 25 basis points, but it seems like 50 is in play. What do you see moving forward? And does it get affected by the numbers we get between now and then?
Greg Robb: I mean on this one, and I might have to eat my words in a couple of weeks, but I think 25 basis point cut is signed, sealed, and delivered. I think monetary policy is not a Netflix show, and so often people turn it into 25 or 50. That’s the big question. I don’t think there are any big questions about September. This is episode five of an eight part Netflix series. This is the boring part. They’re going to go by 25. They’re going to go slowly at first, if they can.
I suppose 50 could come into play if we have a super weak job number. But one of the tones of Powell’s speech at Jackson Hole was, “We got this. We got the economy’s back.” And if you say you’ve got somebody’s back, and then the next thing they look at you and you’re frantically doing something, you’re like, “Maybe this wasn’t such a good idea.” So, they’re going to go 25 and look around. They’re not in any hurry.
Some people on Wall Street say that they’re behind the curve, and that’s that favorite phrase. And by behind the curve, that means that the Fed is cutting too late, that that snowball that we were talking about is big and it’s coming down the mountain. But I don’t think there’s any sign of that, except for people on Wall Street who want to make drama.
Jeremy Owens: Right. Like you said, the speech was very calm and measured. And you don’t want to go against what you accomplished there by then looking panicked, basically.
Greg Robb: Yeah, I suppose there’s that thing where it’s a really bad report. But there’s just no sign that we’re at that stage yet. People are worried about that stage coming, but just because you’re worried about that stage coming doesn’t mean it’s going to be here in a day or two. I think things happen in the economy slowly.
And the big thing that everybody should think about is, where are rates going to go? And as I sit here as a reporter, I don’t know where they’re going to end up. Right now the Fed’s rates are between five and a quarter and 5.5%. So where their final destination is, they haven’t said a word about that. But people are starting to think about that. So, just think in people’s minds that rates are going to go maybe to 4% sometime next year, maybe by the end of next year. If things work out well, that would be a good thing I think, for everybody.
Jeremy Owens: And obviously we do get some more inflation numbers coming up. We get the jobs report at the end of next week. Is there any other economic report you’re really looking for for data that will inform what the Fed does?
Greg Robb: The big enchilada in the room is next Friday, September 6th, it’s the job report for August. The other reports pale in comparison. And people are going to be watching how many jobs to private sector created, how many jobs the government created. And what happened to the unemployment rate, I think they’re expecting around 160,000 jobs were created. A better report than last month is what people in Jackson Hole were telling me that they expected. There was a really weak report in July and that kicked off all that market weakness that we talked about before at the beginning of August. So I don’t think people are expecting that again, but that’s why everybody’s going to be paying attention next Friday.
Jeremy Owens: Just to bring it back to where we started with Jackson Hole, it seems that now Powell and the Fed know where we are and are willing to talk about it. And they know where they need to go. And we just have to sit here and wait for them to make those moves.
Greg Robb: I mean, they really wanted us to focus on the short term. They really just wanted to tell us, “We’re going to go in September.” And then when you ask them about the next meeting, which is November, they start to really quickly just say, “We’re going to look at the data.” Powell has said to us that they’re going to pay attention to whether they’re moving too fast or too slow. That is a super tricky thing to do. I think the way they do it is to say like, “Okay, we’re going to do a clump of three and then take a pause and look around.” But I’m not in that room.
Jeremy Owens: Right. And so, we’ll find out more as this moves along. We obviously have the September meeting coming up, the September jobs report. We’ll continue to monitor all this and try to make sense of it for you when we can. Thank you so much for joining us, Greg.
Greg Robb: Oh, it’s always my pleasure to be here.
Jeremy Owens: We are going to take a quick break. Coming up, here’s why the job market is worse than we thought. Stay with us.
Welcome back to On Watch by MarketWatch. Before the break, we talked with Greg Robb about the Fed’s signals at Jackson Hole. Now we turn to the biggest reason behind the Fed’s expected move, the labor market. Now look, we’ve talked a lot about the labor market slowing down in recent months on this program. But our view is now changing.
The government last week subtracted 818,000 jobs from reports released between June, 2023 and May, 2024, a gargantuan revision that has only been topped once before in U.S. history. And that suggests the job market actually hasn’t been that good for a while now. But is that really that big of a surprise? I mean, we’ve talked repeatedly on this show about U.S. workers doubts about how strong the job market actually was. And this revision only seems to confirm those thoughts. So, we welcome MarketWatch’s Jeffry Bartash and Hannah Erin Lang to discuss what we should take from the revisions and how U.S. workers should see the current labor market.
So we’re here with two of MarketWatch’s jobs experts, first Jeffry Bartash.
Jeffry Bartash: Hi, Jeremy.
Jeremy Owens: And then we also have Hannah Erin Lang from our personal finance department.
Hannah Erin Lang: Hi, happy to be here.
Jeremy Owens: So, we lost 800,000 plus jobs that we thought we had over the last year through March, 2024. What happened?
Jeffry Bartash: A deeper dive into the labor market, as you noted, showed the economy created 818,000 fewer jobs than previously reported from the spring of 2023 to the spring of 2024. One of the things that turned out to be a surprise to a lot of people was the size of the revision. It was the second largest ever. And part of the problem stems from the pandemic. The economy has been sharply altered by the pandemic in its aftermath, so the patterns that used to exist no longer do. And the government historically has always had trouble figuring out how many jobs are created coming out of recessions or when the economy’s slowing down. And right now the economy is slowing, and that probably is part of the reason why they over counted the number of jobs that had been created.
Jeremy Owens: Now look, a lot of people have used this revision to say that the government was trying to lie about the jobs market. This is really just a function of how the monthly jobs report is collected, right, Jeffry?
Jeffry Bartash: The crucial monthly jobs report is actually produced from a very small survey of households and businesses across the country. As such, it’s prone not to be quite as accurate at the first look. That’s why the government goes back later and looks at tax information and other data from businesses to make the report more accurate.
But the government produces the numbers and the government revises them every year. They do it on schedule, everyone knows it’s coming. And most economists knew that the jobs numbers have been overstated because we’d seen prior government reports that told us that. So, none of this was really a surprise to anyone on Wall Street. I understand why readers and listeners might be suspicious, but an economy this large, about 170 million people working, it’s hard to measure it in real time. And that’s why the gum is constantly going back and trying to make its data more accurate.
Jeremy Owens: And there were certain types of jobs that were most affected by these revisions. Hannah, what jobs did we see revised the most from previous estimates?
Hannah Erin Lang: Yeah, there were three sectors that had some of the largest downward revisions, professional and business services, manufacturing, and leisure and hospitality. Professional and business services, that includes things like recruiting, consulting, legal services. That’s interesting because if you speak to workers in white-collar fields or traditional office jobs, that reflects some of what they’ve been telling us. Workers have been saying they’re having this experience of the labor market for a while. And those feelings are substantiated as the picture of the labor market becomes more clear.
Jeremy Owens: Yeah, we’ve talked about white-collar jobs, middle-income jobs having the most trouble in this market. And about 40% of the total revision, somewhere around there, were just these professional and business services or white-collar jobs.
Hannah Erin Lang: Yeah, absolutely. It was a huge chunk of the total downward revisions. And leisure and hospitality is another interesting one because that has been one of the few sectors that has actually helped drive the bulk of the job growth over the last year. So, it was interesting to see those strong job gains lose a little bit of their sheen in this most recent revision.
Professional and business services, that category of employees has lost a lot of the leverage that they may have seen in 2022 or early 2023 where you were able to switch jobs, win a big raise, have a lot of power in your negotiations with employers. And it definitely doesn’t look like that anymore. What I hear from workers is that the pendulum has swung completely the other way in favor of companies over workers.
Jeffry Bartash: And the truth is finding work has gotten harder, and the big pay raises of a few years ago have mostly gone away. Yet the jobs market, it’s still not bad, it’s just not as good as it was a few years ago. From 2010 to 2020, right before the pandemic, we were at average of new jobs about 180,000 a month. So even after this massive downward revision, the number of jobs we’re producing is still roughly the same number we were producing before the pandemic each month. So, it’s still a pretty good increase. Businesses are still hiring here and there, and unemployment is still pretty low. Even better, despite people’s pessimism, there’s actually been no sign of rising layoffs. The number of people losing jobs each month is still near our record low.
Hannah Erin Lang: Yeah. And I would add to that as well. I think when we talk about the job market right now and the moment that we’re in, what I hear from workers, there’s this sense that the moment that we were in 2022 was so extreme. Workers had so much power and so much choice. And it was really kind of unprecedented from a historical standpoint, the leverage that employees had. And I think any come down from that type of moment is going to feel particularly harsh. Historically, if you really zoom out, big picture, we’re not in an incredibly unhealthy job market. But we’re in a very different place from where we were. And I think that is what folks are picking up on and what a lot of this pessimism might be coming from.
Jeremy Owens: Yeah, that’s what came to my mind immediately when I first saw this revision, is that we’ve heard anecdotally from so many workers that the job market is not as strong as the numbers would suggest. And you had actually just reported the week before about a New York fed study that showed that pessimism writ large.
Hannah Erin Lang: Absolutely. So we’ve heard that negative feedback anecdotally for a while, but last week we actually saw it reflected in some data as well. The New York Fed released this survey that looks at consumers experience of the labor market. They do it regularly, but this most recent report showed some rising pessimism. Americans are more pessimistic than they were a year ago about their chances of holding onto their job. There was a sharp increase in the proportion of folks who say they’re looking for a job. And they have this data point that measures folks’ average expected likelihood of losing their job or becoming out of work. That was at its highest level since they’ve started collecting this data in 2014.
Jeremy Owens: And that means a higher percentage of workers expect to lose their job over the next six months. Putting all this together, what are the big takeaways here?
Jeffry Bartash: My big takeaway Jeremy is that even though the worst labor shortage ever has gone away and it’s hard to find a job, businesses were so put off by how hard it was to find workers a few years ago. So, companies are not going to get rid of workers unless they’re failing or they absolutely have to. That’s why layoffs are still near a record low, even though the economy has gotten slower. And with the Fed preparing to cut interest rates soon, that’s going to goose the economy. That could actually lead to more hiring. So, I don’t think people need to fear for their jobs as much. It might be harder to find a new job, but most people should feel pretty secure in their current ones.
Hannah Erin Lang: And I think that that is one silver lining here, which is this worrying data that we may have seen about the labor market over the past few weeks. That is bolstering the case for the Fed to cut interest rates in September. And as Jeff mentioned, that is going to provide a boost to the economy and maybe relieve some of the pressure here.
Jeremy Owens: Well, with this revision, we are still seeing a cool down of sorts. It’s just like the job market wasn’t as good previously as we thought. So, where does this leave us heading into the August numbers that come out next week?
Jeffry Bartash: Yes. Even before these big revisions, the jobs report and various other indicators we have the labor market, we’re showing that the labor market was cooling off. The way I think about it is the jobs report is like a first draft. What’s most important is what’s the trend? Are more people being hired or less? Is the unemployment rate rising or is it falling?
What the jobs report has been telling us is that the labor market has been getting weaker. It’s been most evident in the rising unemployment. The jobless rate has climbed to 4.3% as of July in the last year and a half from what was an incredibly low 3.4%. So yes, to me, you can still trust the jobs report, just don’t take the headline number at face value. The devil, as they say, is always in the details.
Jeremy Owens: Well, thank you so much for joining us today. We’ll talk to you again soon as we continue to follow the labor market.
Hannah Erin Lang: Thank you.
Jeffry Bartash: Thank you.
Jeremy Owens: Before we go, it’s time for what we are watching, a look at the news you need to know for the rest of the week and beyond.
The Fed has switched its gaze from inflation to the labor market, but was that the right move? A Friday report could tell us more. The monthly personal consumption expenditures report will detail how much prices have increased in the past year, with economists expecting the number to come in at 2.5% or so. While that’s still higher than the Fed’s 2% goal, it would have to be much worse for the Fed to rethink its position. For live coverage of the release and reaction on Friday, check out marketwatch.com.
Housing prices continue to hit record highs, but at least the rate of growth is slowing down. The latest Case-Shiller report on the housing market showed that average home prices rose 6.5% over the year ending in June, down from year-over-year growth of 6.9% the month before. Higher interest rates have had the biggest effect on the housing market, and with mortgage rates already declining ahead of a Fed rate cut, we are seeing more houses hit the market. If you’ve been waiting for a reason to start checking out open houses, that reason may be here.
In one of the most crucial earnings reports of the year, NVIDIA beat all expectations again. They reported a record profit of nearly $17 billion in just three months, and forecast more strong revenue growth for this quarter. But the AI chip maker confirmed that its next generation chip called Blackwell, has been delayed for a few months as a result of a late design change. While some of the billions NVIDIA expects from Blackwell may be pushed into next year, executives insisted that demand for current chips is still strong. We’ll talk more about NVIDIA earnings and why they’re so important to the entire stock market next week.
And that’s it for this episode. Thanks to Hannah, Jeffry, and Greg for joining us. To keep following the latest on the Fed and the job market, head to marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating, a review. It really helps others discover the show. And let us know what you want to hear from us. You can reach us at onwatch@marketwatch.com.
The show is hosted by me, Jeremy Owens, and produced by Alexis Moore and Jackson Cantrell. Isaac Gaines mixed this episode. Melissa Haggerty is the Executive Producer. We’ll be back next week with a new episode, and until then, we’ll be watching.
