Jobs report takes pressure off Fed despite signs of weakness

Headline numbers from the June jobs report took pressure off the Federal Reserve to consider an interest-rate cut later this month, likely leaving the central bank on hold at least until the fall.

The latest jobs figures showed US employers added 147,000 jobs last month, exceeding estimates, while the unemployment rate ticked lower to 4.1%, according to the Bureau of Labor Statistics.

Those solid figures, however, masked weakness in private payrolls and other potential warning signs of deterioration in the labor market, a trend that could raise the stakes later in the year.

“The headline looks a lot better than the detail included in the data,” said Joseph Brusuelas, chief economist at RSM US. Still, he added, “the data would tend to reaffirm the Fed’s analysis of an economy that’s slowing but still solid, and does not warrant accommodation at this time.”

Some analysts, however, drew more attention to the signs of underlying weakness.

Kathy Bostjancic, chief economist at Nationwide Mutual Insurance, expects the Fed to wait until September to move, but said officials might have to consider a half-point cut at that time.

“The weak employment report supports our view that the Fed will cut the fed funds rate by 75 basis points by year-end to bolster a slowing economy despite a likely temporary run-up in prices stemming from tariffs,” she said Thursday in a note to clients.

Fed policymakers have held the central bank’s key rate steady so far this year, citing the potential for President Donald Trump’s tariff policies to stoke inflationary pressures. Officials have also pointed to an overall stable labor market to support their view that they need not rush to lower rates.

Rate-Cut Bets

In response to the data, investors dialed back bets for a rate cut when policymakers meet July 29-30. Fed funds futures imply that investors now see about a 7% chance for a cut, compared with a roughly 25% chance ahead of the report.

US Treasuries slumped after the report, with the yield on the benchmark 10-year bond jumping as much as 8 basis points, to 4.36%. The dollar rose for the first time in four days.

While most Fed officials have signaled they prefer to remain on hold for now as they assess the impact of Trump’s policies on inflation and the labor market, the majority still expect to cut rates at least once this year.

The Fed’s wait-and-see stance has provoked sharp criticism from Trump and several officials in his administration, who have argued the Fed should already be lowering rates. They have cited inflation data that has broadly shown a muted response so far to Trump’s increased use of tariffs on US trading partners.

Thursday’s jobs report offered some warning signs for Fed officials. Private payrolls rose by the least since October. The drop in unemployment was also, in part, for negative reasons. While the number of unemployed fell for the first time in five months, the participation rate — the share of the population that is working or looking for work — also declined.

Immigration Impact

That could reflect the impact of the Trump administration’s stricter immigration policies, which have brought a steep drop in border crossings and deterred some undocumented workers from reporting to work. Excluding the onset of the pandemic, the number of workers born outside the US showed the largest three-month drop on record in data going back to 2007.

Overall hiring in June was also driven by state and local governments. In the private sector, job growth was concentrated in a relatively narrow set of industries, especially health care and social assistance, continuing a trend seen in recent months.

“The labor market isn’t as robust as it was, say, a year ago, but it’s stable. And if it’s stable, the Fed can be patient in assessing the risks,” said Stephen Juneau, US economist at Bank of America. “Really, that boils down to what’s going to happen with inflation.”

June data on consumer prices are due July 15.