VT 
The US labour market maintains stability and is approaching maximum employment levels. Historical data from the past two recoveries indicates that a 3.5% unemployment rate is sustainable.
Adriana Kugler, a policymaker from the Federal Reserve, provided insights during her detailed speech titled “Assessing Maximum Employment”. Her speeches are known to be informative, particularly beneficial for those new to the subject.
Current Job Market Conditions
Kugler highlighted that current job market conditions remain firm, reflecting patterns observed in previous economic rebounds. With unemployment holding near 3.5%, there’s a growing sense that the broader market dynamics are well within tolerance levels for what the Federal Reserve considers “maximum employment”. What she laid out was not just a summary of where the labour market sits today, but also a subtle reminder of the metrics the Fed prioritises when measuring the economy’s balance between jobs and inflation.
Her remarks also lent insight into how labour tightness may reduce wage-driven price pressures over time, assuming hiring trends plateau. She pointed to employment participation stabilising, especially among prime-age workers, without creating heavy wage inflation. From our perspective, that suggests a continued pause in strong upward wage pressures, which may, in turn, influence medium-term inflation expectations.
We’ve seen these signals before—low unemployment that doesn’t spiral into overheated conditions can anchor confidence. That becomes particularly helpful for those of us looking for cues on how interest rate policy could unfold. If the Fed feels the economy is not overheating, its hand may remain steady, rather than forced to act aggressively via faster rate adjustments.
Powell and others have echoed similar sentiments in prior remarks, backing up the idea that the economy can hold this level of joblessness without creating dislocation elsewhere. What we should focus on now is not just the headline unemployment figures, but also the participation rate, average hours worked, and wage growth. Those elements taken together help paint a clearer picture. Positioning ahead of major labour reports or Fed commentary will require attention to those underlying indicators, not just surface indicators.
Economic Confidence
This brings forward the need to consider curved reshaping. Recent months have seen limited volatility in short-dated expiries, suggesting that rates near current levels are increasingly expected. While the flattening may not be abrupt, it does hint at measured economic confidence.
Watch how markets react to speeches from voting members, especially those who have traditionally leaned toward data dependency. There’s an increasing pattern where rates traders move more on small shifts in employment input than CPI readings, something that wasn’t as common a year ago.
Those operating on relative value or forward rate agreements should now reconsider assumptions built around cyclical job loss claims. Continuing claims, instead of initial filings, are becoming a better barometer as labour turnover slows. It’s no longer about large inflows or outflows from employment; it’s about persistence, which measures resilience more accurately in the current structure.
We’re keeping close track of 3-month breakeven inflation rates and their recent tight range, as they help validate the assumption of job market “tight but tolerable” conditions. That interpretation favours strategies designed to benefit from extended stability, particularly in the front-end, where implied vol has quietly contracted.
Taylor’s Rule adjustments, when applied using updated core PCE and unemployment figures, still lean toward mildly restrictive policy settings being appropriate. And that informs our view for cautious steepener constructions being unwound—or at the very least, hesitated on.
In coming sessions, eyes will turn to second-tier employment data—layoff notices, churn ratios, and job openings rather than headline numbers. These auxiliary statistics may offer the fastest readout on whether labour hoarding has plateaued or reversed. We expect some rotations in response trades as these data points grow more influential.
