The June jobs report reinforced a trend we’ve been watching for months: labor market momentum is slowing while inflation pressures continue to ease. Yet markets are still assigning meaningful odds to additional Fed rate hikes, creating a disconnect between the data and expectations. Below, we unpack the latest data, what the market may be overlooking, and what it means for borrowers.
The headline
The June jobs report undermines the case for hikes this year. Payrolls +57k vs. ~113k expected, with April/May revised down a combined -74k. The 3-month average is now +111k. Not a collapse — but nowhere near strong enough to justify tightening.
Unemployment fell for the wrong reasons
4.2% looks good until you open the hood: household employment fell 507k, another 213k stopped looking, and 832k people left the labor force entirely. Participation dropped to 61.5% — lowest since the mid-1970s. You don’t build a rate-hike argument on an unemployment rate that fell because ~1 million people exited the job market.
Wages: no alarm bells
+0.3% MoM / +3.5% YoY. In line, contained, and not the stuff of a wage-price spiral. A decent labor market gives Warsh permission to stay tough — it does not force him to get tougher. Hikes require an inflation reason, and wages aren’t providing one.
The disconnect we keep flagging
Oil is back to pre-conflict levels (~$68/bbl), 2-year breakevens have collapsed to ~1.95%, payrolls missed, revisions were negative, and participation cratered — yet the market is still pricing roughly one hike (Sept odds ~50/50, fully priced by Oct, peaking near two by March ’27). Falling inflation compensation with rising nominal front-end rates means one thing: the market has swapped an inflation premium for a “Warsh premium.” Our view: they didn’t hike at $120 oil — they won’t hike at $70 oil with a softening labor market behind it. July 29 FOMC: hold. This is a hold-and-wait setup, not hike-and-hope.
Curves and flows
2s/10s flattened ~15bps mid-June on hike certainty, then re-steepened to ~35-40bps as expectations tempered. Front end +10-15bps on the month; 10-year barely moved (+2bps). Agency bullets inside 5s trading ~1bp to Treasuries; new 10s and 30s auction this week. Deal flow picked up meaningfully — sidelined deals finally transacting, a retail-heavy month, with regional banks, CMBS, and LifeCos providing the funding.
What we’re telling clients
- Hedge here. Spot 30-day SOFR is ~3.60 and the forward curve doesn’t get back to this level until 2028. You are hedging at the low — relief is not priced in.
- Watch collars. 3-year fixed SOFR (~3.93) is still pricing 1-2 hikes vs. ~3.68 floating. If hike expectations continue to fade and fixed rallies back toward floating, collars go on sale: upside protection, downside participation, no premium, no carry. That’s the trade we’re staging for.
- Don’t extend bridges hoping long rates bail you out. Several deals in the pipeline are stretching bridge financing another year betting on lower long-term rates. The curve says that’s hope, not a plan. If a deal pencils today, execute today.
Calendar
- July 8: FOMC minutes
- July 14: CPI
- July 15: PPI
- July 29: FOMC (no hike expected)
- July 30: PCE
Luke Fuller, Director
Luke Fuller is the Director of Capital Markets at Defease With Ease | Thirty Capital, bringing 10+ years of experience in debt structuring, interest rate risk management, and capital markets execution for CRE investors. With expertise in securitization, derivative hedging strategies, and structured finance, he focuses on optimizing debt portfolios and mitigating market risk through advanced financial modeling and analytics. Luke has extensive experience in CMBS, agency, and balance sheet lending, structuring financial instruments, and executing transactions across multiple asset classes. He has advised investors, private equity firms, and REITs on interest rate derivatives, yield curve analysis, loan restructuring, and portfolio risk assessment.
