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Jobs report: Wages continue creeping higher amid inflation

Yahoo Finance's Akiko Fujita and Brian Cheung discuss how markets are digesting the July jobs report and how it could influence the Fed's next policy decision.

Video Transcript

AKIKO FUJITA: As we kick things off with the markets 90 minutes into the trading day, we're seeing the markets crawl back here. The Dow down just about 12 points. They're trading pretty flat. The S&P 500 down 12, and the NASDAQ down 66. In terms of sectors we're watching, energy seeing the biggest gains. But of course, we saw a big decline yesterday. So bouncing back here, up about 2.6%. Also, materials, seeing some gains there as well.

And then we are watching the Treasury markets today on the back of that red-hot jobs report. And that's where we are starting this hour. All this market action coming after the US economy added a whopping 528,000 jobs in July, exceeding estimates of 250,000. Unemployment ticking down slightly from the previous month to 3.5%. Brian, you know, I know you had a breakdown earlier on the show-- or the morning show. But in many ways-- you know, we were talking about this-- the market reaction kind of points to where we are right now. Investors saw that initial number and said, this is not good.

BRIAN CHEUNG: Whoa, yep.

AKIKO FUJITA: A strong jobs market is good, yes, but not when you've got inflation this high. And yet, this is backwards-looking. We're talking about the previous month. We've got a CPI coming down next week. I mean, what does that say--

BRIAN CHEUNG: Well--

AKIKO FUJITA: --about where we are?

BRIAN CHEUNG: It's the good news is bad news, bad news is good news kind of weird dynamic that we find ourselves in. And every single different economic data point is going to have this type of weird reaction to it. Let's just take the stock market side of everything, kind of put that on the sidelines because really what matters at the end of the day is that it's good. It is a good thing in the macroeconomic environment for people to be getting jobs and for people to be getting paid more.

Now, when that's also coming, though, alongside that inflationary story, where you do have high inflation eroding any real wage gains, that is a problem. Regardless, what you see in this July jobs report is still thematically true when you see employers wanting to find workers. They'll take them when they can find them. And they're willing to bid up wages to do that. And I think the wage side of the story is when we bring in that inflation component because that is probably what the Federal Reserve is watching here and going, oh, wait.

AKIKO FUJITA: Wages are still creeping up.

BRIAN CHEUNG: Wages still creeping up. Maybe we do have to continue to get a bit more aggressive on how we tighten the spigot on our monetary policy here by delivering perhaps larger rate hikes. And I think that is what markets are trying to, you know, digest here.

AKIKO FUJITA: Well, and that's the good news is bad news part of it, right? To your point, strong jobs, that's good for the economy, but not at a time when inflation is this high and at a time when the Fed is trying to tick up that unemployment number a little higher to try and slow things down to bring inflation down. I mean, the number we got today, even though it is the previous month, seems to suggest that those hikes really haven't kicked in yet. Or have they and do they need to be more aggressive?

BRIAN CHEUNG: Well, here's the interesting point here because some within the Federal Reserve-- and again, it's early, right? We got this report a few hours ago. But some might say this actually supports the argument that we have here, which is that higher interest rates don't have to take a devastating bite out of the labor market, right? We haven't seen that yet. And it's possible that the larger rate hikes that we got this summer will at some point start to have a bite in there.

But based off of what we've seen so far in the first seven months of the year, there's nothing in the labor market that says Federal Reserve rate hikes are going to force unemployment to go up to 5% or 6%. No sign of that yet at all. Now, does that story hold up in the second half of this year? I don't know. But people on that side of the camp--

AKIKO FUJITA: So--

BRIAN CHEUNG: --might be taking it--

AKIKO FUJITA: --I mean, here's the question.

BRIAN CHEUNG: --away from that.

AKIKO FUJITA: We look at today's jobs report. Next week, we've got another inflation print coming in. Let's say that comes in softer. Then where does the Fed go from there? Because that's a good sign, right?

BRIAN CHEUNG: Right, yeah. Well, and again, there's the kind of lag component here, right? The survey periods might then start to come into play. But again, Fed is going to have actually another round of economic data. Remember, the next policy setting meeting isn't until September. So actually, they still have a little bit more time to kind of settle and see how the totality of all this data shows a picture of the--