The Job Opening and Labor Turnover Survey (JOLTS) showed a decline in openings in June. Job opening fell to 9.58 million last month, short of the 9.6 million economists were expecting and down from the 9.62 million reported in May. FWDBONDS Chief Economist Chris Rupkey tells Yahoo Finance Live that the labor market remains “quite tight, kind of a shortage economy here.” But as Rupkey notes, “the million dollar question is whether or not that keeps from the Fed tightening further.” Chicago Fed President Austan Goolsbee said in a recent interview with Yahoo Finance, the Fed, thus far, has been able to walk what he called a “golden path” of raising rates and not sending the economy into a recession.
– Let’s get some more on the economic picture right now. Will the job market resilience continue to be a tough pill for the Fed? That new data showing the job openings in June did miss street expectations by a touch. Joining us now is Chris Rupkey, FWDBONDS chief economist.
So Chris, as we talked about, a little bit of softening. But still, I mean, that’s a lot of openings still, isn’t it?
CHRIS RUPKEY: Yeah, there does seem to be– this seems to be one of the reasons why the labor market remains quite tight, kind of a shortage of economy here. Maybe it’s due to the baby boomers born 1946 to 64 dropping out and no one there to take their place. For whatever reason, the labor market joblessness isn’t going up like the Fed forecast.
– I’m taking a look at some of the layoffs and discharges. That was little changed during the month here, Chris, at about 1.5 million. And then additionally here, the quits rate, that decreased to 3.8 million here, and the percentage basis there, 2.4%. So if there’s anything that you extrapolate from those numbers as to where there is still an environment for employees to find work elsewhere, what would that signal to you about the continuance of a trend within the labor economy?
CHRIS RUPKEY: Well, it looks like the trend is going to continue. It seems like this labor market is going to continue to be quite tight. The million dollar question is whether or not that keeps the Fed from tightening further here and whether or not this underperformance, if you will, of demand in the economy allows inflation to fall closer to target.
At the moment, core PCE inflation is running 4.1% in June. The Fed’s target is 3.9 at the end of this year. So it’s going in the Fed’s direction without the economy suffering too much, at least, in terms of job losses.
The only thing that kind of worries me right now about the outlook was apparently, the Treasury borrowing needs have gone up dramatically. That was released 3:00 o’clock yesterday afternoon. It’s probably helping to send 10-year Treasury yields higher today. That’s one of the factors, I think, higher bond yields that could put the kibosh on the stock market rally potentially leading to weaker growth down the road, weaker capital expenditures, something like that.
– So just to walk us through that, basically there is going to be a lot of supply coming to market of government debt. You think there’s going to be demand for that government debt. So we’re going to see those prices go up and yield, what are we going to see happen to yields as a result of all that? I mean, in other words, the supply coming to market there, what are the dynamics that are going to be at work?
CHRIS RUPKEY: Well, I was thinking that whatever the Treasury sells, investors worldwide will buy it. But when you look at the figures here, it’s starting to look more alarming. The last two years, 2021-2022 Treasury sold $1.5 trillion. This year, it’s going to be above $3 trillion, we’re double that.
This kind of snuck in late in the year, maybe it’s somewhat due to a slowdown in tax receipts, which could be a slower economy. But yeah, I think the worry right now is that 10-year Treasury yields could go higher than the market’s currently thinking. Everyone’s been betting once inflation comes down, the Fed can eventually cut rates and treasuries won’t go high, much higher because they’ll wait for the Fed to cut rates next year. But I don’t know, the supply deluge looks like something we haven’t seen. We certainly haven’t seen it since the pandemic 2020. All that money during the 2020 that Treasury borrowed, that was sold.
But one of the key things that’s pushing up these debt needs, of course, is QT. QT is about $700 billion of it. So out of $3.2 trillion call it this year, calendar year of borrowing. $700 billion of that is QT. Maybe the fed should think about stopping QT for a while and letting the Treasury be able to sell this debt to the public without pushing up 10-year Treasury yields.
– Chris, even if the Fed does pause either on QT or on broader rate policy in the near term to just see how the economy digests some of that policy that’s already been enacted, what do you believe could happen to inflation in this near term as they continue to monitor that and try to continue to watch for a trickle lower to that 2% target? Some have been calling for or at least anticipating a resurgence or a tick up in inflation once again.
CHRIS RUPKEY: Well, I think some of the take up is that gasoline prices at the pump, I think they jumped about $0.15 to $3.75 a gallon this week. So gasoline prices are moving up. Maybe that’ll push forward into CPI inflation.
We really just got one good month of reading on core PCE inflation, a 0.2% monthly change. If continued at 0.2%, that would be good for the rest of the year. But there’s no guarantees of that. We really just have one good month. So yeah, there could always be an unpleasant surprise there. I hope not enough to derail the stock market rally here.
– Oh, we all do. Well, Chris, appreciate the time here on the day. Thanks so much for breaking this all down and adding some insight and context around it. Chris Rupkey who is the FWDBONDS chief economist. Appreciate it.