For much of this year, on any given day, you could look at the price of oil and correctly guess what happened to bond yields. In the last few weeks, that correlation has evaporated.

Why it matters: It's a sign that growth risks may be supplanting inflation worries as the dominant economic concern.

State of play: It's not obvious whether an energy supply shock should affect inflation or growth more.

• On the one hand, more expensive fuel can ripple through prices for everything else. On the other, more expensive energy acts like a tax on consumers and businesses that consume it.
• Since the attack on Iran in late February, markets have treated the former concern as the central dynamic in the global economy.

Zoom in: As such, on days when oil futures pointed to higher prices, bonds almost always sold off and their yields — which move in the opposite direction from their prices — rose.

• Traders were pricing in a world where inflation is higher for longer, and central banks react by raising rates more — and betting, implicitly, that growth would prove resilient despite the energy price headwind.
• For the 30 trading days ended Sept. 10, the correlation between the one-day move in West Texas Intermediate crude and 10-year U.S. Treasury yield reached a stunning 77%.
• The Financial Times noted in late September that the correlation was the highest it had been since the Persian Gulf War of the early 1990s.

Yes, but: Now, that correlation has collapsed — and is about negative 10% over the last 30 trading days. In other words, on days when oil rises, it's more likely than not that bond yields fall.

Between the lines: It's probably not a coincidence that this shift has occurred at the same time cracks have appeared in the debt market that's financing the AI buildout.

• As long as the AI and data center boom was powering ahead, seemingly impervious to energy price shocks or bubble fears, the inflationary impact of higher oil prices dominated the economic outlook.
• But with that sector wobbling, the economy may be more vulnerable to a growth slowdown as higher prices for gasoline, diesel fuel and other energy products weigh on activity.
• And that's giving the Federal Reserve more breathing room to avoid rate hikes.

Of note: This inversion of the relationship is clearly on the mind of the Fed's leadership, even if they aren't ready to draw firm conclusions about its implications.

• In his news conference two weeks ago, chairman Kevin Warsh pointed to "a stable correlation" between oil prices and interest rates for much of this year, and while noting that he is not the author of a Wall Street newsletter, he nonetheless mused on the relationship at some length.

What they're saying: "That correlation has been quite strong, until very recently where you've seen oil prices continue to move up, largely due to geopolitical events," he said. "But what's happened? Interest rates have rolled over to the downside."

• "To the extent that oil prices were to move lower, again, probably due to geopolitical events, that's something that we're going to have to interrogate. What are the effects on the Fed's dual mandate? What are the effects on financial market prices, and what are we going to do about it?"
• "But that's a hypothetical, and in fact, if we look at financial market prices, futures prices for oil, they've moved up over the course of the last several weeks, and I can't help but take note of that too."

The bottom line: If this macro regime change persists, it suggests the Fed has more leeway to move with caution on further rate hikes, no matter what happens in the Strait of Hormuz.

Americans have conflicting views of the job market: They are more worried about unemployment rising nationwide, even as they are more confident that they could find another job if they lost their own.

Driving the news: The perceived probability that unemployment will rise over the next year climbed to 45.3% in October, the highest since April 2020, according to the New York Fed's Survey of Consumer Expectations — an increase driven by those without a college degree.

Yes, but: The perceived probability of finding another job if one lost their current position rose to 46.5%, the highest in about a year.

• Americans' perceived probability of losing their jobs over the next year also edged higher, rising 0.4 percentage point, to 13.9%.

State of play: The mixed outlook underscores an unusual feature of today's labor market — hiring is picking up and unemployment remains historically low, but finding work can still be a prolonged struggle.

The backdrop: The October jobs report showed that employers added a surprisingly robust 165,000 jobs last month. The unemployment rate has held in the narrow range of 4% to 4.2% for five consecutive months.

• But Friday's data also showed that 2 million Americans have been unemployed for at least six months, accounting for more than 25% of all unemployed workers.
• The average spell of unemployment climbed to 27.1 weeks in October, the longest since December 2021. (Excluding the pandemic, it's the highest reading since August 2016.)

Of note: Ahead of the October Consumer Price Index report — out tomorrow — the New York Fed said that inflation expectations were unchanged last month at 3.9% over the next year, 3.3% over three years and 3% over five years.