Labor Market 'Should be Better' This Year than in 2025 Says Stephanie Roth

Stephanie Roth, Chief Economist at Wolfe Research, discusses the job market, US consumer, and how a prolonged Iran stalemate will impact monetary policy.

As soon as he got a company email address for his summer internship at accounting software maker FloQast, Sam Otto reached out to his employer’s newly hired director of artificial intelligence to see how he could help. After reminding the baby-faced business major that it was still his first week on the job, the AI director sent back links to two eight-hour-long YouTube videos explaining the ins and outs of a particular workflow automation platform. “He thought it’d get me off his back and I’d come back in three weeks or whatever,” Otto says. “No, I spent that entire weekend earnestly watching those videos and experimenting.”

With his boss’s blessing, Otto spent the rest of his finance internship working with the AI director to streamline tasks like analyzing competitors’ earnings calls and pulling charts from the company’s data system into slide decks. Managers who attended his end-of-summer presentation were surprised to see the amount of development work he did, given his nontechnical background.

Companies are increasingly looking to young workers like Otto to inject enthusiasm for AI into their workplaces, as concerns mount that employees aren’t “disrupting themselves” fast enough for a number of reasons: ignorance, inertia, skepticism, fear, professional pride. Like the digitally native millennials before them, Gen Zers have found that the introduction of a new technology in their formative years has in many cases engendered a level of fluency no one else in the workplace has. That’s why certain businesses are doubling—or tripling—down on entry-level hiring, even as the overall entry-level market has tanked: Unemployment among recent college graduates hovered near 6% last year and underemployment reached almost 43%, the highest since 2020, the latest data from the Federal Reserve Bank of New York show. Treasuries fell, lifting yields from their lowest closing levels in more than two weeks, as oil prices steadied with Middle East supply curtailed by the US war on Iran.

US government bond yields were two to four basis points higher on the day at about 3 p.m. in New York. Tuesday’s closing levels, the lowest since mid-March, were reached amid a nearly 8% slide in the price of the US benchmark oil futures contract. Oil prices stabilized on Wednesday, and US stocks advanced, sending the S&P 500 Index to a record for the first time since January.

The roughly 30% surge in crude prices since the US attacked Iran at the end of February has become a dominant driver of Treasury yields. The related spike in retail gasoline contributed to steep increases in consumer inflation gauges, wiping out expectations for Federal Reserve interest-rate cuts that previously had been anticipated this year. Treasury yields reached their highest levels of the year on March 27, with several tenors higher by about 50 basis points since the war started. Their retreat from those levels initially reflected damage to the US economic outlook. At the same time, oil has pulled back from its recent peaks on signs the US administration is seeking to end the crisis.

“I think it’s a reflection of a general caution,” Angelo Manolatos, an interest-rate strategist at Wells Fargo, said of the stalled bond rally. “With the spike in energy prices and inflation measures there’s a high bar to return to late February levels.”

Fed policymakers had already paused cutting interest rates in January on the view that the their three quarter-point cuts in each of the previous two years had fostered improvement in the labor market. Meanwhile, the consumer inflation gauge they aim to keep at around 2% — the price index for personal consumption expenditures — rose 2.9% last year.

Different inflation gauges suggest that March data to be reported on April 30 will show an increase from that level. Based on consumer and producer price index data for March released in the past week, economists at Morgan Stanley forecast PCE price acceleration to 3.42%

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