Strong US Payrolls Data Impact on Federal Reserve Rate Cut Expectations

The release of strong US payrolls data has prompted traders to adjust their expectations for the next Federal Reserve rate cut, according to Bloomberg data.

The next rate cut is now projected to occur just once in 2025, and as late as October. This marks a significant shift from earlier in the week when traders were considering potential rate reductions in June or July.

Recent job figures provide a clearer picture of the labor market, free from distortions caused by weather or strikes. These numbers support the notion that the US economy is progressively less reliant on monetary policy support.

The U.S. economy added 256,000 jobs, with the unemployment rate slightly decreasing, according to the Labor Department’s Friday announcement. December’s increase in nonfarm payrolls surpassed economists’ expectations of 155,000 jobs per a Wall Street Journal survey, while the unemployment rate of 4.1% outperformed the anticipated 4.2%.

These results indicate a recovery in the U.S. labor market from its midyear dip, showcasing potential signs of accelerating momentum. Average hourly earnings grew by 0.3% from November to $35.69, representing a 3.9% increase from December 2023.

Following the release of the employment report, stock futures fell sharply as the robust jobs figures are likely to solidify the Federal Reserve’s strategy to decelerate the frequency of interest-rate cuts in the upcoming months.