There can be little doubt that today’s employment data is consistent with indications of an abrupt downshift in the economic expansion. After climbing at a rate of 244,000 private-sector jobs per month in the first quarter, second quarter payroll growth fell to 110,000 per month. If the Fed defines “success” in its rate-hiking endeavor by the extent to which it is relieving the “excess demand” for labor, it appears to have triumphed. Nevertheless, despite the market’s gains on reduced chances for further Fed root-canal, a strong note of caution remains evident. At a yield around 5.85%, the 30-year Treasury today has only retraced the minor setback it suffered earlier this week on nervousness that the jobs report would show greater strength. The 0.1% decline in the unemployment rate, combined with the small contraction in the pool of available workers, is enough to keep the Wall Street commentator herd on high alert for signs of “wage inflation.”  This is despite the fact that at 3.6%, wage gains over the past year have been matched almost exactly by growth in non-farm productivity. Futures markets are still priced for a better-than one-third chance of a 25 basis point rate hike at the August FOMC meeting, rising to 70% by the fall. Certainly, another rate hike cannot be ruled out at this point. But as evidence of a slowing trend mounts, these expectations are more likely to recede than to advance. Alan Greenspan has abandoned many traces of the principles that he once professed to hold. But one quality he has not forsaken is sharp political acumen. With the political season moving into high gear, he is unlikely to want to invite the criticism that would likely ensue at the sight of the Fed chasing its inflation phantom to the point of courting outright recession.