Why Data on Job Openings is Closely Watched by the Federal Reserve

Job openings were little changed from the month prior in May, surprising economists with the labor market’s resiliency.

There were 8.1 million job openings in May, more than the 7.9 million economists surveyed by the Wall Street Journal and Dow Jones Newswires estimated. Hires, quits and layoffs also were little changed, the Bureau of Labor Statistics reported.

“This short-run stability is a good thing,” said Indeed’s Nick Bunker, head of economic research at the job search site’s Hiring Lab. “But the question remains if this period of calm can continue or if more unsteady times are on the horizon.”

A more complete picture of what’s next in the labor market could come this week. ADP’s private employment report is set to be released tomorrow and will be followed by Friday’s employment report from the Bureau of Labor Statistics.

What Does Today’s Report Mean For The Fed?

Federal Reserve officials have been keeping a keen eye on the labor market lately. They’re looking for any distress that would indicate their fight against inflation has resulted in widespread layoffs or too much weakness in the labor market.

“The labor market is healthy enough to allow the Fed to be patient before lowering interest rates, although recent favorable inflation data give the Fed more latitude to respond to any surprising signs of weakness in the labor market,” wrote Nancy Vanden Houten, lead U.S. economist at Oxford Economicsm in an analysis of Tuesday’s report.

The Federal Reserve has held its influential fed funds rate at a 23-year high for nearly 12 months, putting pressure on businesses’ budgets by making it more expensive to borrow money. By raising interest rates, the central bank aimed to tame inflation by discouraging spending.

Data in the second quarter has shown progress toward the central banks’ annual inflation goal of 2%, and Fed officials are considering cutting interest rates in response. However, they want to ensure they correctly time the first interest rate cut.

Some economists say relieving interest rate pressure could affect the labor market.

“An interest rate cut this year might be necessary to keep demand for workers from falling too far, but may also provide an unnecessary boost to a market that may not need it,” Bunker said.