David Goldman and Matt Egan report on the economy for CNN. This is their text conversation about this month’s job report.

David Goldman: Hey, Matt! The jobs report on Friday came in…less than good, let’s say. Are we back in this “meh-conomy,” where we have stagnant job growth and uncomfortably high inflation with no easy solution? Those are two difficult jobs to tackle at once, right?

“Jobs” was not supposed to be a pun, but let’s go with it.

Matt Egan: Hey, Dave! I wish we were doing this under happier circumstances. Because, yes, it feels like we just got an economic plot twist no one wanted.

The thinking before Friday: Solid but not spectacular job market. The thinking now: Soft job market AND elevated inflation.

Goldman: Right. I feel like not so long ago, we were talking about, “The economy is strong, but everyone hates it.” Now, maybe sentiment and reality are somewhat converging? Maybe?

Egan: Exactly. The surveys (many of which are dismissed by investors as overly political) may have sniffed out this labor market weakness before the hard data. Conference Board’s labor market split (jobs plentiful vs jobs hard to get) = weakest since 2021.

But before we dive deeper, let’s pause for one of those asterisks I know our audience loves to hate.

This was not just a soft jobs report. It was a messy one. And there is a very active debate happening as we speak over how much weight we should put on this report. How much of this is statistical noise vs economic reality? We’ll find out soon enough.

Goldman: One month is way too little data to hang an economic theory on. The evidence is still pretty strong for an economy that’s just “fine” if not “pretty good”: The economy grew at a 1.5% rate last quarter, inflation is only at 3.5% — not the 9+% it was at in 2022. Jobs have averaged solid-enough gains this year, February and July excepted. Retail sales are up for eight straight months.

But the Fed’s got a big decision to make here in September. It sure seemed like it was on the path to rate hikes soon. But now if it hikes rates in a slowing job market, it could make the situation worse.

Are you on “Team Warsh” now?

Egan : I’m not going to tell Kevin Warsh how to do his very difficult job.

Goldman: That doesn’t stop you from telling me how to do my job.

Egan: Ha! Anytime I tell you how to do your job, I am sure to do it subtly and with plausible deniability.

But Warsh is preaching patience on inflation. And that argument looks A) stronger than a few days ago; and B) more likely to win over his new colleagues.

In other words, even if we acknowledge the July jobs report was a mess that only a toddler could make, the labor market looks weaker.

This jobs report was weak enough that it buys Warsh & Co. the time that they may have been looking for.

Goldman: So what about the argument that the Fed was lacking credibility? (That’s Fedspeak for failing to back up its tough inflation stance with action.) Does that argument hold less or more water now?

Egan: I think the Fed-has-a-credibility argument is a separate but related issue.

Goldman: Oh, interesting. How so?

Egan: Fed watchers I talk to are not upset that Warsh is reluctant to hike. That’s a totally reasonable stance. (Even more reasonable after the jobs report.)

The issue isn’t even that Warsh won’t tell us what’s going to come next. That’s his philosophy. The real issue is that Warsh hasn’t really told us what WOULD make him hike.

In Fedspeak, that’s called the “reaction function.” We gotta put our heads together with Phil Mattingly (our CNN colleague and fellow Fed watcher) and suggest a rebrand for that term.

Goldman: Phil would be an excellent marketing executive for the Fed.

But I think Warsh was a lot more hawkish on inflation than folks might be giving him credit for. He said — defiantly — that the Fed wouldn’t stop until it gets to 2% inflation.

And he said the markets gave the Fed time to assess the economic situation, which might turn out to have been the correct course of action. Bond yields have remained pretty high in recent weeks, which acts as their own quasi-rate hike — without the Fed needing to put its foot down and accidentally step on the weaker-than-expected job market.

In other words: Warsh may not be playing 3D chess, but he knows what he’s doing.

Federal Reserve Chair Kevin Warsh speaks during a news conference at Federal Reserve Headquarters in Washington, DC, on July 29. Win McNamee/Getty Images

Egan: So let’s unpack that for a sec.

1. Warsh is 100% talking tough on inflation. But the criticism from some economists is that he’s not backing that up with action. (It doesn’t need to be a hike, but a real commitment to hiking.)

2. Yes, the bond market is tapping the brakes that Warsh seems reluctant to talk about touching. But remember, it’s not desirable to have the bond market do the Fed’s job for it. It can be turbulent and at some point would raise concerns that the Fed is losing control.

3. The July jobs report was soft enough that it caused yields to go down, somewhat reducing that brake effect.

Goldman: Here’s the counterpoint, though…

Warsh’s philosophy seems to be: The Fed will shut up and let the markets react not to what I’m saying as much as what the economy dictates.

In other words, if inflation is high, the bond market will send yields higher to counteract that.

It’s not that the Fed is delegating its entire job to the bond market — just the opposite.

When the Fed suggests it’s going to hike rates, the market reacts and then the Fed locks itself into that decision. If it doesn’t hike after signaling it would, the market goes haywire.

Imagine if Warsh had said, “We’re leaning toward a hike next meeting.” The bond market would probably be even higher now than it is. And the Fed, after seeing this mediocre jobs data, may have locked itself into a decision it no longer wanted to make.

Egan: There’s definitely a role for the bond market. But the Fed, not the bond market, calls the shots when it comes to short-term rates. That’s literally what they do.

Goldman: Right. The Fed is the big boss in this video game.

Egan: Warsh had a colorful analogy at the July meeting about the market learning to “play the ball, not the referee.”

Made for great headlines and tweets. But the more I think about it, the less sense it makes.

Referees are not active participants. The Fed is. I have no idea if my NY Jets are going to win their first game, but I 100% know the ref won’t toss any passes to the tight end.

Goldman: I think we all know that the Jets aren’t going to win their first game, Matt.

Egan: (Though to be clear, my Jets have been bad for long enough that we’ll take the help wherever we can get it.)

I’d like to challenge you to put your money where your mouth is on that Jets prediction, but we’ll keep it PG.

Goldman: The two smartest things I heard after the Fed meeting were from our colleague Rachel Siegel, who said it’s not that Warsh is being completely silent, we just don’t know how to speak his lingo yet.

I think that’s right. And then the Wall Street Journal’s Greg Ip noted the fun line about the Fed: If it mentions purple traffic cones, Wall Street will start counting purple traffic cones.

At some point, Warsh and Wall Street will figure one another out.

Egan: Absolutely agree that there is a learning curve aspect to all of this.

There’s a new guy in charge. Whenever that happens, there are bumps along the way.

Goldman: Totally.

The New York Stock Exchange on March 5. Michael Nagle/Bloomberg/Getty Images

Egan: Ben Bernanke, Janet Yellen and Jerome Powell — Warsh’s three predecessors — spoke a different language. And they told Wall Street more or less where they thought the ball was going.

Warsh doesn’t think that’s smart, because Fed and consensus forecasts have often been wrong.

But just because Warsh doesn’t want to tip his hand, doesn’t mean the market will stop trying to guess it. That’s Greg Ip’s point. And so the bond market moves are NOT just reflecting economic reality. They’re also reflecting what investors think Warsh will do next,

Goldman: Agreed. They’re playing the same game they always do. They just don’t like the messenger right now.

But just because Wall Street grew comfortable with Bernanke, Yellen and Powell, doesn’t mean Warsh is doing it wrong.

Egan: 100%. Imagine if Bernanke was solely judged by his infamous 2007 quote that subprime is well contained. Or Yellen only judged on the taper tantrum when she started. Or Powell on his belated response to post-Covid inflation.

Goldman: Right! Meanwhile, this is getting painful for Americans: mortgage rates, which were sinking below 6% earlier this year, are now getting closer to 7% as rates keep moving higher. That’s gotta be on the Fed’s mind, right?

Egan: It’s such a rough time for young people who want to buy a home. A one-two punch of high prices and high (and rising) borrowing costs.

And higher rates will make it even more expensive for wannabe first-time buyers.

It’s way too early to say Warsh is doing right or wrong. But there is the risk that his strategy will backfire by confusing investors.

And I know few who will lose sleep over some frustrated fixed-income traders. But there are real-world consequences if confusion over Fed policy causes severe turbulence in markets.

Goldman: Well, the next meeting will be incredibly consequential.

And if we take Warsh at his word, which I argue we should (he deserves the benefit of the doubt), he believes his strategy is in the best interest of the American people.

Egan: The next Fed meeting, as of now, is A) Live (a rate hike is in play); and B) A toss-up right now — 50/50 odds of a hike.

Yes, on giving Warsh the benefit of the doubt. Here’s how I’d frame it: Warsh is very savvy. It’s not lost on him that he is basically unfireable, and he’s got a legacy to protect.

Goldman: Right. I’m just glad I’m not him. He’s got the worst job in the country now.

Egan: Careful what you wish for. “Chairman (or Chair?) Goldman” has a nice ring to it.