Labor Market Remains Hot
Benjamin Cowen examines a stronger-than-expected jobs report and explains how it raises market expectations for a Federal Reserve rate hike while reinforcing the view that near-term inflation, rather than recession, is the main concern. He concludes that the next inflation report could determine the Fed’s decision, arguing that persistent inflation, elevated oil prices, and resilient employment make a rate hike more defensible even as political pressure favors lower rates.
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Benjamin Cowen says market expectations for a September Federal Reserve rate hike rise back to about 60% after the jobs report, up from roughly 50% following Christopher Waller’s comments favoring a possible pause.
Cowen argues that the labor market remains resilient, with year-over-year nonfarm payroll growth recovering from 116,000 in December 2025 to 603,000.
He says the unemployment rate is 4.1% and that markets are currently more concerned about inflation than about a recession caused by labor-market weakness.
The speaker considers initial jobless claims of 206,000 inconsistent with a struggling labor market and says he would not become concerned about recession until claims exceed 300,000.
Cowen expects the Bank of Japan to raise rates in September and says it could potentially raise rates twice before year-end, bringing rates to about 1.5%.
He expects the Federal Reserve will likely raise rates once but is less certain about a second hike, saying the outcome will depend on incoming data.
Jobs Report Rate-Hike Odds
The hot jobs report pushed September rate-hike expectations back toward 60% after Federal Reserve Governor Waller had lowered them toward a coin flip.
Resilient Labor Market
Unemployment remains historically low, payroll growth was revised higher, and improving labor data suggests inflation—not recession—is the Federal Reserve’s immediate concern.
Bank of Japan Hikes
Japan’s elevated two-year yield points toward additional Bank of Japan hikes, while the Federal Reserve may deliver one hike but remains less certain about a second.
Oil And Inflation Risks
Elevated oil prices, geopolitical conflict, tariffs, and persistent demand could push inflation higher and make a Federal Reserve hike more defensible.
Recession Signals Absent
Low initial claims, falling unemployment, and limited state-level deterioration indicate that the labor market is not currently displaying broad recessionary conditions.
Youth Employment Divide
Labor conditions vary sharply by age, with teenagers facing severe unemployment while prime-age workers experience a much stronger market and AI reshapes future job prospects.
Global Rate-Hike Pressure
A GDP-weighted global labor measure remains stable, while many foreign central banks have already raised rates and the Federal Reserve appears constrained by political pressure.
Strong Growth Supports Hike
Strong GDP expectations, returning inflation, and a resilient labor market support a rate hike, especially as rising Treasury yields challenge the Fed’s credibility.
Inflation Report Decisive
The labor data confirms a hot economy, but the next inflation report is expected to determine whether the Federal Reserve should raise rates or hold.
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