Employment and Growth
Okun's law, the Phillips curve, and why jobs data moves FX
- Explain why employment is half of the CB's mandate
- Read NFP / unemployment surprises with the right lens
- Spot when jobs strength turns into an FX negative (wage-spiral risk)
First Friday of every month, US Non-Farm Payrolls drop. Within 30 seconds, 80% of FX flows for the next hour are reacting to one number. Knowing what that number actually means to the Fed is the difference between trading and gambling.
The dual mandate
The Fed has a dual mandate: stable prices (~2% inflation) AND maximum employment. The ECB, BoE, and most others nominally have just inflation, but in practice they all care about jobs because high unemployment kills the political case for restrictive policy.
Why jobs data moves FX
Strong jobs → wages rise → consumer spending rises → demand stays hot → CB stays hawkish → currency up. Weak jobs → opposite chain. The kicker: wage growth (Average Hourly Earnings) often matters more than the headline jobs number, because wages feed directly into core inflation.
Low unemployment → wage pressure → inflation. Implies tradeoff: CB can have low unemployment OR low inflation, not both.
Globalisation + tech weakened the link for two decades. But 2021-23 showed it's still alive: tight labour → wage spirals → CB has to crush demand. The Phillips curve isn't dead, just flatter.
NFP +350k (vs +200k expected) AND wages +0.5% MoM (vs +0.3%). USD likely reaction?
- Employment is half of the CB mandate (formally for Fed; informally for all)
- Strong jobs → CB hawkish → currency up
- Wages matter more than headline payrolls
- Phillips curve still applies in tight labour markets
Sign up to take the quiz
5 questions wait at the end of every briefing. Score 80%+ to complete the briefing, earn ranks, and track which fundamentals you've mastered.
Account is free. Quizzes are free. The 30-day refund applies if you ever upgrade to a paid plan and aren't satisfied.