The Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday showed that job openings fell more than expected in September, hitting their lowest point since January 2021. The report also showed a slight uptick in the hiring rate and a decline in the quits rate. EY chief economist Greg Daco joins Seana Smith on Catalysts to break down what the fresh economic data says about the labor market and what it means for the Federal Reserve’s ongoing easing cycle.

“The JOLTS report is actually quite informative,” Daco says, noting, “It does show that there is much less tightness and continues to be less tightness. Over the past three years, we've seen job openings come back down to levels that are close to what they were before the pandemic. But importantly, in this report, we saw a slight rebound in the hiring rate, which shows you that essentially the floor is not falling under the labor market, but instead, what we're seeing is a gentle cooling of labor demand and less labor supply absorption. Nothing catastrophic, but still, this gentle softening of labor market trends.”

Ahead of the jobs report coming on Friday, Daco says, “We're going to have a very muddy report when it comes to the employment report. As you know, there were a couple of strikes that distorted the numbers. And there were also a couple of major hurricanes that likely distorted the payroll print.” He notes, “I would caution anybody trying to over-interpret those numbers. You will see markets trying to analyze and overanalyze the data as to what the Fed will do, but I would be very cautious, especially with this extremely muddy employment report.”

The economist says that the market “should really focus on the underlying fundamentals when it comes to inflation,” explaining, “The process of disinflation is extremely bumpy because you have these monthly occurrences that disrupt economic activity and disrupt inflation readings.”

Daco highlights four underlying fundamentals: consumers are being more prudent with their outlays, businesses have less pricing power, wage growth is moderating, and productivity growth is still quite strong. He says these factors together are “the right ingredients to move us closer to 2%,” the Fed’s inflation target. The economist says, ”This is very much the time to adopt this prudent approach of gently easing monetary policy. And a 25 basis points rate cut would be optimal” at the Fed’s meeting on Nov. 9.

To watch more expert insights and analysis on the latest market action, check out more Catalysts here.

This post was written by Naomi Buchanan.