The July jobs report was a policy dove’s dream come true.

No, it’s not very patriotic to hope for job losses, but if you’re Kevin Warsh, your job just got a lot easier, at least in the near-term.

As you might imagine, the Treasury curve bull steepened in the immediate aftermath of Friday’s BLS stunner. Two-year US yields were lower by 7bps in the knee-jerk move, while 30-year yields fell just 2.5bps.

In hindsight, the three hawkish dissents at last week’s FOMC meeting now look misguided, and the pressure on Warsh to raise rates next month has abated almost entirely.

Fed funds futures are now the least hawkish since mid-July. As the figure above shows, market pricing reflected just one fully-priced hike for 2026 following the lackluster hiring figures.

It wasn’t just the decline on the NFP headline — the sixth of Donald Trump’s second term, I should note — and the size of the downward revisions to the prior months that made the jobs report so exculpatory for Warsh.

The YoY pace for average hourly earnings growth missed by three-tenths. That’s a lot. And at just 3.2%, it’s the slowest in half a decade, as illustrated below.

Friday’s AHE print could very well mean inflation-adjusted wage growth was negative a fourth month in July. That doesn’t bode especially well for spending.

To the extent policy hawks were inclined to argue that the persistence of America’s inflation overshoot, fanned by the tariffs and the war, risked putting a wage-price spiral back on the table as a concern, that argument carries even less weight now than it did last week.

If you annualize the three-month rate of wage growth as measured by the BLS’s average hourly earnings series, you’re left staring at the slowest pace — a mere 2.25% — in a decade, excluding the pandemic.

Further, the ongoing decline in the participation rate suggests widespread disengagement. If it weren’t for that, the jobless rate would be meaningfully higher and the case for rate hikes commensurately less compelling. That’s not lost on Warsh and the doves.

Of course, if spending holds up, you can make the case all of this matters less, but even setting aside that spending’s concentrated in the upper-half of the so-called “K,” where paper gains on stock portfolios and home equity cushions are an excuse for every impulse buy, the decline in the saving rate may be a canary.

I’ve used the figure above repeatedly. It’s updated and assumes a 3.4% headline CPI print for July.

It’s not hard to make a case that with consumer sentiment and the saving rate loitering at or near record lows and real earnings growth in negative territory, spending will falter in the event the labor market cracks.

Recall that perceptions of the labor market were already deteriorating.

As the figure above reminds you, the share of respondents to the Conference Board’s confidence survey describing jobs as “hard to get” rose steadily since Trump’s second inaugural and breached 20% four times this year, including June and July.

Bottom line: The July jobs report’s a game-changer for monetary policy expectations in the US, or at least it should be. And that’s risky. One could argue that from a long-term macroeconomic stability perspective, the last thing America needs is a convincing excuse for Warsh to avoid raising rates in the face of a perennial inflation overshoot.

As long as labor market weakness doesn’t manifest in mass job losses of the sort that presage economy-wide spending retrenchment, bad news could be good news for the equity wealth effect. And as long as stocks are buoyant, services-sector inflation can stay sticky. That’s one, among many, reasons to suspect inflation isn’t going back to 2% on a sustainable basis any time soon.