Traders cut odds of Fed rate cut in June after January jobs surprise

WASHINGTON – Unexpectedly strong US employment data for January has reduced the odds the Federal Reserve will see a need to cut interest rates again by mid-2026.

Worries about rising unemployment, which prompted three rate cuts at the end of 2025 before a pause in January, were likely eased by numbers released on Feb 11 showing that

130,000 jobs were added in January.

Unemployment also fell to 4.3 per cent in January.

Fed officials at January’s policy meeting had already cited signs of stabilisation as a reason to hold rates steady.

The Feb 11 report prompted traders to cut the odds of a rate cut at the June meeting – previously seen as the most likely timing for the next reduction – to under 50 per cent.

Economists cautioned that the upbeat January numbers could yet be revised lower, and that hiring continues to be dominated by a handful of sectors, primarily healthcare.

Revisions to 2025 data showed that job gains averaged just 15,000 a month, down from an initially reported 49,000 a month.

Yet the bounce in January will calm fears that unemployment is set to keep climbing amid worries over the impact of artificial intelligence (AI) and widespread concerns that companies are putting hiring plans on hold, said Santander US Capital Markets chief US economist Stephen Stanley.

Kansas City Fed president Jeff Schmid, speaking on Feb 11, said the central bank needs to keep rates at restrictive levels to continue putting downward pressure on inflation. He added that he is 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 the United States should be paying the lowest interest rates globally.

Mr Trump’s National Economic Council director Kevin Hassett told the Fox Business Network there is “plenty of room for the Fed to cut rates”, citing a big supply shock from AI that will boost growth without creating inflation.

Mr Kevin Warsh, whom Mr Trump has said he will nominate to take over as Fed chair after Mr Jerome Powell’s term ends in May, has echoed those views.

Fed watchers cautioned that it is too soon to make calls on where the economy will be by June – when Mr Warsh would chair his first policy meeting if he is confirmed by then. 

For now, key indicators suggest a firming labour market and broader economy, neither of which immediately supports Mr Warsh’s calls for lower rates, said Wolfe Research chief economist Stephanie Roth.

“It makes his job a little bit harder,” she said. BLOOMBERG