Traders reduce odds of Fed rate cut in June after January jobs surprise
Economists warn the upbeat numbers can be revised lower, and that hiring is dominated by a handful of sectors
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[WASHINGTON] Unexpectedly strong US employment data for January has reduced the odds that the US Federal Reserve will see a need to cut interest rates again by mid-2026.
The worries about rising unemployment, which prompted three rate cuts as at end-2025 before a pause in January, were likely eased by numbers released on Wednesday (Feb 11) showing that 130,000 jobs were added in January.
Unemployment also fell to 4.3 per cent in January.
The Fed officials at January’s policy meeting had already cited signs of stabilisation as a reason to hold rates steady.
The report prompted traders to cut the odds of a rate cut at the June meeting to under 50 per cent. The June meeting was previously seen as the most likely timing for the next reduction.
Economists cautioned that the upbeat January numbers could yet be revised lower, and that hiring continued to be dominated by a handful of sectors, primarily healthcare.
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Revisions to 2025 data showed that job gains averaged just 15,000 a month, down from an initially reported 49,000 a month.
Santander US capital markets chief US economist Stephen Stanley said the bounce in January would calm fears that unemployment was set to keep climbing.
He added that this comes amid worries over the impact of artificial intelligence (AI) and widespread concerns that companies were putting hiring plans on hold.
Kansas City Fed president Jeffrey Schmid, speaking on Wednesday, said the central bank needed to keep rates at restrictive levels to continue putting downward pressure on inflation. He noted that he was not seeing many indications of restraint in the economic data.
US President Donald Trump continued to call for more rate cuts. In a social media post after the jobs data was released, he hailed the “great jobs numbers” and said that the US should be paying the lowest interest rates globally.
Trump’s National Economic Council director Kevin Hassett told the Fox Business Network that there was “plenty of room for the Fed to cut rates”, citing a big supply shock from AI that would boost growth without creating inflation.
Kevin Warsh, whom Trump has said he will nominate to take over as Fed chair after Jerome Powell’s term ends in May, has echoed those views.
Fed watchers cautioned that it was too soon to make calls on where the economy will be by June – when Warsh would chair his first policy meeting if he is confirmed by then.
Wolfe Research chief economist Stephanie Roth said that current key indicators suggested a firming labour market and broader economy, neither of which immediately supported Warsh’s calls for lower rates. “It makes his job a little bit harder,” she added. BLOOMBERG
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