Why Don’t You Get a Job?
The year is 1999. JNCO wide-leg jeans are fashionable, the United States is hosting the women’s World Cup, and punk band The Offspring just released the hit song, “Why don’t you get a job?” As the calendar advanced toward the new millennium, bond markets had just survived a rate-hiking cycle followed by a tepid easing cycle, only to return to hikes. The labor market decelerated during the accommodation, but an unexpected boom in jobs caused the Federal Reserve (Fed) to raise rates after years of easy money.
Commentary from Fed officials was focused on inflation vigilance. For example, William Poole, president of the St. Louis Fed, stated in June 1999 that “the goal of [monetary] policy is to keep inflation low and stable,” as the economy showed signs of overheating. Fed Chair Alan Greenspan, in his July 1999 Humphrey-Hawkins testimony to Congress, signaled that central bankers were “alert to signs of accelerating inflation,” and left open the possibility of further increases.
In many ways, one could also set the above narrative in 2026. Wide-leg jeans are back in style, the U.S. is hosting the men’s World Cup, and The Offspring remain popular, as do many bands from this generation. Both today and in the late 90s, inflation was increasing, job growth was unexpectedly accelerating, and the Federal Open Market Committee was leaning hawkish. Indeed, this past week’s labor market data offered a clear answer to the employment question posed by The Offspring: Yes, America did “get a job” (Figure 1).
According to the Bureau of Labor Statistics, 172,000 jobs were added in May, well ahead of the 88,000 consensus expectation. The labor market expanded across most sectors, resulting in a broader diffusion of job gains across indices. The gains were also largely pro-cyclical, further accompanied by advances of 52,000 and 40,000 in government and education/health, respectively (see previous Talking Points).
Job gains tend to decelerate as expansions mature, but 2026 has bucked that trend. A reversal into additional employment opportunities late in an economic cycle is not unprecedented, though. As noted, today’s cycle is giving late 90s vibes, with a late-stage surge in not only employment, but also inflationary pressures and hawkish Fed rhetoric.
Regarding the labor market, Bloomberg Intelligence editor Kimberly Yuen stated: “It’s hard to call the job market anything but strong. For the rates market, the risk will be more skewed toward rate hikes and a reduction in the odds of a rate reduction. It will be difficult for [Fed Chair] Kevin Warsh to convince other members of the FOMC to reduce rates. We don’t think a rate hike is imminent, but [with] a few more payroll prints like this, a few hikes will have to become our base case.”
Other labor indicators signaled strength last week as well. JOLTS Job Openings surprised to the upside at 7.618 million in April, compared to the 6.866 million consensus forecast, the highest print since May 2024. The prior month’s 6.866 million was revised up to 6.887 million, too. The job/jobless ratio jumped to 1.03 from 0.95, the highest since January 2025 and the first time that job openings exceeded unemployed job seekers since June 2025.
While the underlying JOLTS details were mixed, the data does point to stabilization in labor demand. Similarly, ADP private-sector payrolls came in slightly on the upside in May, rising by 122,000 (compared to 120,000 expected) and by 105,000 in April. This marks the strongest print since January 2025. Like the BLS report, the ADP report emphasized the breadth of job gains. Education and health services led with a 57,000 increase in payrolls (not surprising; see previous Talking Points), while trade, transportation, and utilities added 36,000 jobs.
The professional/business services, leisure/hospitality, and construction sectors also boosted headcount. “Hiring was more broad-based in May than we’ve seen in the last few years,” said Nela Richardson, ADP’s chief economist. “The labor market continues to show sustained momentum going into the summer hiring season.”
The takeaway from last week’s labor data was certainly hawkish and will embolden calls for a more neutral stance on policy rates. The impressive recovery in payrolls growth over the past few months suggests that the U.S. economy is in a strong enough position to weather a fresh round of inflationary pressures and geopolitical uncertainty. Many Fed officials, who meet again June 16 to 17, have focused on the Iran war’s impact on inflation; a growing number have also said the central bank should signal that its next rate move is just as likely to be a hike as a cut.
For instance, Dallas Fed President Lorie Logan (an FOMC voter) said: “I am increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability and appropriately balance both sides of the Fed’s dual mandate.” When Logan’s speech is considered alongside Cleveland Fed President Beth Hammack’s comment last Tuesday that, “it may soon be appropriate for policy to act” on inflation, one should not be surprised to see several policymakers pencil in 2026 rate hikes in the Fed’s upcoming “dot plot” forecast.
The market has finally come around to the notion that the economic data supports a neutral-to-hawkish monetary policy stance. Earlier this year, the market priced in a terminal rate—using the active secured overnight financing rate (SOFR) swap futures—just above 3.0% (Figure 2). Yet the Fed target range was steadfast, at 3.50% to 3.75%, which means the market expected one to two cuts of 25 basis points.
Recall that the theme among Fed officials in late February 2026 was patience and data-dependence:
- Beth Hammack (Cleveland Fed) said that rates could be on hold for “some time,” preferring to err on the side of patience (rather than fine-tuning the funds rate), while assessing the impact of prior cuts.
- Jeff Schmid (Kansas City Fed) said that he was not seeing evidence that the current rate level was restraining the economy and that there was “more work to do on the inflation side.”
- Austan Goolsbee (Chicago Fed) said that several rate cuts remained possible in 2026 if inflation continued declining toward the 2% target, though he cautioned against front-loading cuts before seeing progress.
- Christopher Waller (Fed governor) dissented in January in favor of a cut, but by late February indicated that he could support a March pause if February labor market data came in solid—calling the decision to pause or cut “close to a coin flip.”
Back in February, the internal division at the FOMC was palpable. Meeting minutes released around February 18 showed that officials were deeply divided over future rate cuts, with a consensus that a significant drop in inflation would be needed before acting. Uncertainty around tariffs and downstream price pressures kept the Fed in a holding pattern, with most officials leaning toward keeping rates steady in the near term while remaining open to cuts later in the year, contingent on inflation progress.
Despite consistent messaging (data dependent and patience), the market priced in additional cuts through most of the beginning of 2026. Finally, though, the market began changing its tune and is now more closely aligned with the rhetoric from Fed officials.
Much has been made about new Fed Chair Warsh and his preference for less transparency or, at least, less forward guidance. To us, less transparency could mean that the difference between market pricing and the Fed’s target range becomes more drastic in future months because of weaker communication. Or it may not change much at all, since the market has already shown that it doesn’t always take the Fed at its word.
History may not repeat itself exactly, but it often rhymes. By December 1999, the Fed had decided to hold rates steady and maintain a neutral bias, explicitly citing uncertainty about Y2K-related computer problems. Back then, the Fed’s pivot language was predominantly about preemptive inflation control in the face of a very tight labor market and strong demand growth, rather than any reaction to a single labor market data point; officials also indicated that they would reassess the situation at the next meeting once Y2K-related disruptions passed.
Later, in 2000, the Fed hiked rates. Officials, however, were careful to frame each hike as measured and data-dependent, while the neutral bias signals reflected genuine uncertainty about how much tightening was ultimately needed. Today, the Fed is holding rates steady and will likely change to a neutral bias shortly. Unlike in 1999, Fed officials can cite geopolitical uncertainty as their motivation.
While the mortgage business prefers lower rates, the economic landscape now is one of a strong labor market, which helps Americans broadly. As The Offspring also said, “Hey, that’s something everyone can enjoy.”
FROM THE DESK
Agency CMBS — Last week was quiet in our sector. Ginnie spreads were flat to biased slightly wider, while Fannie DUS spreads were largely unchanged.
Municipals — AAA tax-exempt yields were lower throughout the yield curve, week over week. April and May were difficult months for primary new issuance, but deals have been well received by investors the past two months. This is primarily due to strong weekly mutual fund inflows in recent weeks, combined with large June principal and interest payments being put to work by investors. Although Treasury yields moved higher last week, the municipal bond market marched to its own tune and did not follow. Investors contributed $1.4 billion into muni funds last week, with high-yield funds receiving $426 million of those inflows.
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