"Non-farm payrolls" suppress interest rate cut expectations, market reevaluates Fed policy path.

Unexpectedly strong January employment data released in the United States has significantly cooled market expectations of another interest rate cut by the Federal Reserve before mid-year. With the labor market further stabilizing, concerns about the ongoing rise in unemployment rates are diminishing, and related risk scenarios are no longer as urgent. The data shows that 130,000 new jobs were added in the United States in January, bringing the unemployment rate down to 4.3%. The data, released by the U.S. Bureau of Labor Statistics on Wednesday, eased market concerns about deteriorating employment. It was these concerns that prompted the Federal Reserve to cut interest rates three times in late 2025 and to stay put in January this year. At last month's policy meeting, Federal Reserve officials mentioned signs of stabilization in the job market as a reason to keep interest rates unchanged. Following the release of the latest employment report, traders quickly lowered the probability of a rate cut at the June meeting, which was previously seen as the most likely timing for the next cut, to below 50%. Tim Mahedy, a former senior advisor at the Federal Reserve Bank of San Francisco, said: "This undoubtedly complicates the case for cutting rates, the January data was indeed very strong." However, economists caution that the strong performance in January could still be revised downward, and job growth is still concentrated in a few industries, mainly in the healthcare sector. Revisions to data from last year show that monthly job growth averaged only 15,000, much lower than the initially reported 49,000. Nonetheless, Stephen Stanley, Chief U.S. Economist at Santander US Capital Markets, pointed out that the January rebound is enough to alleviate concerns about the unemployment rate rising continuously under the impact of AI and cautious hiring by companies. Stanley said, "The strength of the January data essentially puts an end to the narrative of 'the labor market is about to collapse,' which some Fed doves frequently mentioned before." Meanwhile, policy disagreements continue to simmer. Kansas City Fed President Schmid stated on Wednesday that the central bank still needs to keep interest rates at restrictive levels to continue downward pressure on inflation, and said there was "not yet much sign of contraction" in economic data. On the other hand, President Trump continues to call for rate cuts. He praised the "great employment data" on social media after the release of the job data and said the U.S. should enjoy the lowest interest rates globally. His National Economic Council Director, Kevin Hassett, also told the media that the Fed still has plenty of room to cut rates, citing the supply shocks brought by AI would promote economic growth without pushing up inflation. Kevin Warsh, who was previously nominated to replace Powell as Fed chair by Trump, shares a similar view. Research suggests that the January non-farm employment report has reduced the urgency for the Fed to quickly cut rates, but if inflation continues to fall in the coming months, policy space still exists. The institute predicts that the Fed could still cut rates by a total of 100 basis points this year. However, many observers emphasize that it is still too early to definitively predict the policy direction in June. Stephanie Roth, Chief Economist at Wolfe Research, said that key indicators currently show that the labor market and overall economy are strengthening, which does not completely align with Warsh's advocacy for swift rate cuts. "This does make his job more difficult, indeed."