Fed: Weak NFP complicates response to Oil shock – MUFG

MUFG’s Senior Currency Analyst Lee Hardman highlights that February nonfarm payrolls fell by 92k, reversing January’s gains and underscoring a still-weak underlying US labour trend. Temporary factors such as weather and strikes distorted the data, but private employment growth remains subdued, leaving the Federal Reserve juggling a soft jobs backdrop with an Oil-driven inflation spike and delayed rate-cut expectations.

Soft jobs data meets rising energy inflation

"The release of the latest nonfarm payrolls report released on Friday did though reveal a big downside surprise for the health of the US labour market."

"The report revealed that employment contracted by -92k in February giving back the strong employment gains of 126k in January."

"The scale of employment weakness in February was driven by a number of temporary factors including the bad winter weather, a health-care workers strike, and payback weakness for strong employment growth recorded in January."

"Private employment growth has averaged 30k/month so far in 2026 which compares to an average of 26k/month in Q4 2025."

"The combination of still weak US labour market and energy price shock is putting the Fed in an even more difficult position when setting policy."

So far the US rate market has moved to push back both the timing and scale of further Fed rate cuts lifting US rates and the US dollar. However, there has been a bigger hawkish repricing in Europe. The euro-zone rate market has now moved to price in almost 50bps of ECB rate hikes by year end even though the euro-zone economy will be hit by a bigger negative energy price shock.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)