Good morning! To no surprise, the Fed held interest rates steady Wednesday.

Stocks surged during and after his speech. All three major indexes finished the day green and the S&P 500 had its best session since February.

Today’s edition unpacks Jerome Powell’s press conference, which included clues on a September rate cut, and cautionary signals for the job market.

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Powell’s shifting priorities

The Fed left interest rates unchanged Wednesday in the 5.25 to 5.5% range, a two-decade high.

Powell told reporters that his team has growing confidence for a September rate cut, but they have not made any decisions for future meetings.

Inflation is moving in the right direction, the labor market remains relatively stable, and economic activity still appears strong, in his view.  

That said, he still wants to see “more good data” before adjusting policy.

“Why not [cut] today? I would just say the broad sense of the committee is that we’re getting closer to the point at which it would be appropriate to reduce our policy rate, but we’re not quite at that point yet,” Powell said.

He shared 3 things central bankers want to see before lowering rates:

• Inflation cooling “more or less with expectations”

• Economic growth staying “reasonably strong”

• Jobs market not weakening beyond current conditions

If all those hold true by September, a rate cut “could be on the table,” Powell said. 

Markets see 100% odds of a cut in September, CME data shows.

Over the last two years, the Fed has discussed its two goals — low inflation and stable employment — in a lopsided way, in favor of inflation.

Policymakers previously have said they were “highly attentive” to prices. 

The language in the latest Fed statement suggests their priorities are shifting. The committee tweaked past phrasing to say they are now attentive to “both sides of its dual mandate.” 

This change is subtle but notable. The heightened focus on jobs is one clue that policymakers like where inflation is going, and now intend to be extra vigilant about employment trends. 

In June, unemployment climbed to 4.1% for the first time in nearly three years.

Kory Kantenga, the head of economics for the Americas at LinkedIn, said the recent uptick in unemployment is not because of more layoffs, but instead due to more people entering the job market.

Companies have pulled back on hiring, and employee turnover in turn has moderated. 

“There’s just not as much churn as there was before the pandemic,” Kantenga told me. “That suggests the labor market might be even slower than the Fed thinks.”

LinkedIn data shared with Opening Bell Daily shows the platform’s hiring rate is down 8.1% in June 2024 compared to the same time a year ago, and it’s fallen 2.2% compared to just one month prior.

The gauge tracks the number of hires divided by total LinkedIn membership.

Currently it points to more employees staying put, fewer people starting new jobs, and an overall weakening labor market.

It has fallen dramatically since its 2021 peak.

Meanwhile, another internal metric tracked by LinkedIn shows worker confidence on finding a new gig is currently “very low.” 

“The issue with the labor market right now is that there may not be much room left to slow down before employers decide to cut costs and start laying people off,” Kantenga said. “There’s an undertone of that risk in what the Fed has been saying.”

Did the Fed make the right choice to hold rates steady? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

Elsewhere:

✅ Meta crushed it in the second quarter. Shares of the Facebook parent soared more than 6.8% after hours after the company beat Wall Street estimates for revenue and profit. One point of contention, though, was that Meta’s virtual reality division continues to lose billions of dollars. (CNBC)

📈 Great day to be a chip stock. Nvidia did not report earnings Wednesday, but it’s stock gained more than 12% anyway because one of its competitors, AMD, published good quarterly results the day before. The stocks also benefitted from Microsoft revealing higher spending on data infrastructure during its earnings call. (Yahoo Finance)

📉 …but not every chip stock wins equally. While its peers surged, chip-designer Arm Holdings shed more than 13% after hours as markets responded poorly to the company’s revenue guidance. The stock did climb more than 8.4% during Wednesday, but all of those gains were erased in the evening. (Investopedia)

Rapid-fire:

• Bond yields plunged, oil spiked, and the US dollar weakened in response to the Fed decision (WSJ)

• Shareholders are suing CrowdStrike, alleging the cybersecurity firm defrauded them en route to the July 19 global outage (Reuters)

• Pinterest stock dropped 14% for its worst day in over a year (Bloomberg)

• The US and EU are holding urgent discussions to prevent a war in the Middle East (FT)

• Inflation in Kenya eased to a four-year low in July at 4.3% (Bloomberg)

Last thing:

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