U.S. January Job Growth Hits 130,000. Unexpectedly Optimistic Nonfarm Data Raises Doubts, Will Rate Cuts Really Continue to Be Delayed?

TradingKey - Non-farm payroll reports released Wednesday (ET) showed that U.S. non-farm payrolls in January were unexpectedly strong, reaching 130,000, marking the largest monthly increase in over a year, with the unemployment rate falling to 4.3%. Regarding the January jobs data, Nick Timiraos, known as the "Fed Whisperer," stated that this reinforces the Federal Reserve's resolve to maintain its pause on rate cuts for longer.

Market reaction confirmed this. Following the release of the non-farm data, U.S. Treasury prices fell across the board, with the two-year yield on track for its largest single-day gain since October 2025. Bond prices and yields are inversely correlated; the rise in yields signifies that the market, based on expectations that the Fed will delay rate cuts, is demanding higher returns on Treasuries. Interest rate swap markets show that traders now see less than a 5% chance of a Fed rate cut in March, with a total of about 49 basis points of cuts expected by December, lower than previous expectations.

However, does this across-the-board, stronger-than-expected non-farm payroll data truly mean the period of sluggish job growth is entirely in the past? Will it stall the pace of rate cuts? And what impact will it have on various asset classes?

Unemployment Rate Stabilizes, but Labor Market Is Far from Recovery

Timiraos noted that for the Fed, the most important information provided by the January jobs report is the stability of the unemployment rate. In 2025, job growth figures were significantly revised downward, which may prove that using this data as a reference is highly unreliable. According to the latest revised data, the U.S. added only 181,000 jobs in 2025—just 15,000 per month—down from the pre-revision figure of 49,000 per month. Conversely, the fact that the unemployment rate fell rather than rose even under relatively dismal hiring conditions suggests the labor market remains resilient and a U.S. recession is far from imminent.

While these data may suggest that recession risks have eased, some analysts argue they do not prove that the labor market is gradually improving. The latest data showing only 181,000 jobs added in 2025 is not only far below expectations but also a fraction of the jobs added in 2024. In 2024, the last full year of former President Biden's term, 1.459 million jobs were added. Some analysts believe this situation constitutes a "hiring freeze"—where employers do not lay off workers but also do not hire—resulting in a labor market that does not recover despite a stable unemployment rate.

Additionally, some analyses question the limitations of the job gains shown in the January data: growth was concentrated in a few sectors such as healthcare, retail, and construction. This means the labor market recovery has failed to spread across all industries, and overall employment performance remains poor.

Wall Street Expects Rate Cuts to Be Delayed, Not Canceled

The Wall Street Journal suggests that the strong January jobs data could reinforce the Fed's wait-and-see approach, making it difficult for officials to use "labor market weakness" as a justification for cutting rates. For officials worried that rate cuts could exacerbate inflation, they have reason to believe the labor market has stabilized after three consecutive cuts last year.

This makes forecasting rate cuts more difficult. Tim Mahedy, a former senior advisor to the San Francisco Fed, stated that the case for rate cuts has become complicated.

Nevertheless, Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said the market still finds it difficult to completely rule out all expectations for rate cuts this year. In other words, the Fed's pace of rate cuts is merely delayed, but the policy path will not change entirely.

Bloomberg Economics economists, including Anna Wong, stated that this report reduces the urgency for the Fed to cut rates. However, with inflation expected to slow, the Fed still has policy space to support rate cuts to aid the labor market recovery.

Economists like Anna Wong expect 100 basis points of rate cuts this year, while Goldman Sachs' (GS) Asset Management's Kay Haigh expects room for two more rate cuts this year. TD Securities economists Oscar Munoz and Gennadiy Goldberg forecast 25-basis-point cuts each quarter, but expect the timing to shift to June, September, and December, eventually bringing the federal funds rate to 3%.

Timiraos believes the market is now focusing on the year-beginning price resets in the CPI. The January inflation data to be released this Friday will be the next key indicator for judging the Fed's policy path.

Kay Haigh of Goldman Sachs Asset Management stated that if the CPI data surprises to the upside, it could shift the balance of risks in a hawkish direction. Economists like Anna Wong expect the January CPI data to be softer than market expectations, which would leave room for a decision to cut rates.

Currently, Wall Street generally expects rate cuts to be delayed, an impact that has already transmitted to the Treasury market. On February 11, Treasury yields jumped sharply, while the US dollar rose on expectations of sustained high interest rates, with the US Dollar Index climbing to 97.07. For commodities, which have been volatile recently, the expectation of delayed rate cuts will limit upward momentum, and gold prices may continue to face pressure.