Labor Holds the Line

In recent weeks, Treasury yields have risen broadly as investors weigh renewed inflation concerns, sustained labor market health and uncertainty around the Federal Open Market Committee’s (FOMC) next federal funds rate decision. Despite Fed Chair Kevin Warsh’s recent hawkish comments on inflation, Fed Governor Christopher Waller indicated he would support leaving rates unchanged at the Fed’s upcoming September meeting if inflation data showed continued progress. This divergence highlighted the significant attention inflation data will receive ahead of the Fed’s September meeting once it is released in the coming weeks.

However, inflation is only one half of the central bank’s mandate. Any decision to further tighten monetary policy will also be made against the backdrop of labor market conditions, as continued labor market stability could support more aggressive policy action if Fed officials still believe inflation to be a significant issue. The upcoming Labor Day holiday is a fitting backdrop for this week’s labor and employment data, which generally supports that argument while also pointing to a labor market that is becoming less dynamic.

Tuesday’s release of the most recent Job Openings and Labor Turnover Survey (JOLTS), which covered July, showed relatively little change across several important measures:

1. Job openings held near 7.3 million
2. Hiring and total job separations were both approximately 5.1 million
3. Layoffs and discharges also changed little to 1.7 million.

The report’s “quits” statistics offers offer another useful perspective. Because workers are generally more willing to voluntarily leave a job when they feel confident about finding another one, quits can serve as an indirect measure of worker confidence. The quits rate declined modestly from 2.0% to 1.9% in July, but it has hit that level several times over the past 18 months and does not represent a meaningful break from its recent range.

Other labor data this week painted a more positive picture. Friday’s nonfarm payrolls report showed that the U.S. added 162,000 jobs in August. The figure exceeded economists’ estimates by more than 100,000 jobs and was the largest increase since March, but it remained close to the five-year median of ~157,000 job additions. Unemployment also remained unchanged at 4.1%, and weekly unemployment claims stayed historically low. In reaction, short-term Treasury yields rose slightly and U.S. equity indices declined modestly, as market participants come to terms with the rising likelihood of a potential policy rate increase. The pronounced reaction to the data is a strong signal of how data-dependent the Fed’s decisions have become in recent months.

Viewed together, the data continues to resemble a low-hiring, low-firing labor market, the condition that has become the norm over the last two years. Importantly, current labor market conditions remain markedly different from both the strong, jobseeker’s market investors became accustomed to immediately after the pandemic and a labor market experiencing significant deterioration. For the FOMC and policymakers, that distinction matters. Fed Chair Warsh has continued to place significant emphasis on inflation, and we believe his recent communication suggests a greater willingness to tighten policy if price pressures remain persistent. Governor Waller’s comments this week demonstrate that there is not necessarily consensus within the FOMC, which means the next several economic releases could still materially influence the debate.

For now, this week’s labor data suggests deterioration has not arrived. Hiring has picked up in the short term, layoffs remain limited and broader measures of labor turnover have changed relatively little. That stability keeps the Fed’s options open and ensures data releases in the coming weeks will receive even more attention than usual.

Takeaways for the Week

• Fed Governor Chris Waller indicated support for holding rates steady, if August inflation data show continued progress
• July’s JOLTS report showed little change in job openings, hiring, quits and layoffs, furthering a picture of a labor market that is slowing but remains relatively stable
• Friday’s Nonfarm Payrolls report showed the economy added 162,000 jobs in August, surpassing economists’ expectations. U.S. equity indices declined and short-term Treasury yields rose slightly in reaction

Sources

• There Are Four Forces Pressuring Bonds: War Is No. 1 - WSJ
• Stocks Rally on Dovish Fed Comments | What’s News for Sept. 3 - WSJ
• Job Openings and Labor Turnover Survey News Release - 2026 M07 Results
• US job openings rise in July after sharp downward revision in prior month | Reuters
• Quits: Total Nonfarm (JTSQUR) | Federal Reserve Economic Data (FRED) | St. Louis Fed
• Unemployment Rate (UNRATE) | Federal Reserve Economic Data (FRED) | St. Louis Fed
• Employment Situation News Release - 2026 M08 Results
• All Employees, Total Nonfarm (PAYEMS) | Federal Reserve Economic Data (FRED) | St. Louis Fed

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