The U.S. January Non-Farm Payroll Report shows that the labor market is stronger than expected, prompting the market to delay expectations for the Federal Reserve's interest rate cuts. Traders generally expect the first rate cut to be postponed from June to July.
The report released on Wednesday, January 11, Eastern Time, indicates that the U.S. added 130,000 non-farm jobs in January, far exceeding the market consensus expectation of 65,000, marking the largest monthly increase in over a year; the unemployment rate in January did not stabilize as the market expected, but instead fell to 4.3%; the employment data for the entire year of 2025 was significantly revised down, showing that the actual performance of the labor market last year was much weaker than previously understood.
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Nick Timiraos, the chief economic reporter for The Wall Street Journal, often referred to as the &#34;new Federal Reserve press agency,&#34; commented that the January employment report reinforces the Federal Reserve's determination to pause interest rate cuts for a longer period. He cited Federal Reserve Chairman Jerome Powell's remarks on January 28, stating, &#34;The economy has once again surprised us with its strong performance—this is not the first time.&#34; Timiraos believes that attention is now shifting to the year-start price reset of the CPI.
This report drove U.S. Treasury prices down across the board, with the yield on two-year U.S. Treasuries poised for the largest single-day increase since October 2025. The interest rate swap market indicates that traders believe the likelihood of a Federal Reserve rate cut in March is less than 5%, with an expected total cut of about 49 basis points by December this year, lower than the previously expected cut of 59 basis points for the year. This data makes it more difficult for the next Federal Reserve Chair nominee, Kevin Warsh, to push for rate cuts in the future.
Wall Street institutions generally believe that strong employment data reduces the necessity for the Federal Reserve to cut rates before mid-year, but does not completely rule out the possibility of rate cuts this year. Several institutions still expect two rate cuts this year, but the timing has been pushed to the second half of the year. The strong performance of employment data has also alleviated market concerns about an economic recession, seen as a positive signal for risk assets.
<h2>&#34;New Federal Reserve Press Agency&#34;: Focus on Unemployment Rate Stability</h2>
Nick Timiraos pointed out on social media that for the Federal Reserve, the focus of the January employment report will be on the recent stability of the unemployment rate, especially considering that the expected employment growth for 2025 has been significantly revised down. According to the latest revised data, the U.S. added only 181,000 jobs in 2025, with a monthly increase of only 15,000, down from the previously revised monthly figure of 49,000.
When asked about the impact of the revised data, Timiraos responded, &#34;The revised data was negative as expected, which somewhat makes the strong performance of the early January figures more noteworthy.&#34;
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He stated that attention has now shifted to the year-start price reset of the CPI, with the January inflation data set to be released on Friday becoming the next key observation indicator.
<h2>Federal Reserve's Wait-and-See Stance Strengthened</h2>
The Wall Street Journal reports that the January non-farm payroll report may reinforce the Federal Reserve's wait-and-see stance, making it difficult for Fed officials to find reasons for further rate cuts due to a weak labor market.
The report suggests that this may provide more ammunition for the inflation-wary &#34;hawks,&#34; who will point to various signs indicating that interest rates have not substantially suppressed economic activity. These signs include a continued decline in the unemployment rate, a decrease in the number of people working part-time due to an inability to find full-time work, and a reduction in the number of individuals unemployed for more than six months—all of which indicate that the labor market has stabilized after last year's weakness led the Fed to cut rates three times in a row.
Alongside the release of the January employment data, the U.S. Bureau of Labor Statistics (BLS) also announced on Wednesday a significant downward revision of the total employment growth for 2025 from the initially reported 584,000 to 181,000, meaning the average monthly job growth was revised down from about 49,000 to about 15,000, making 2025 the worst year for employment performance since 2003, excluding years of economic crisis.
This benchmark revision is significant, indicating that the actual weakness of the labor market last year was far greater than previously understood.
<h2>Post-Report Decline in U.S. Treasuries, Short-Dated Bonds Lead the Drop</h2>
U.S. Treasury prices fell across the board following the employment data release, with short-term Treasuries experiencing the largest declines and leading the rise in yields. After the report was released, the yield on the two-year Treasury quickly surged above 3.50%, reaching as high as 3.55%, an increase of about 10 basis points during the day. The benchmark 10-year Treasury yield also briefly surpassed 4.20%, rising about 6 basis points during the day.
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Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, stated that the data means &#34;the Fed is still not in a hurry to cut rates in the near term.&#34; However, &#34;the market will find it difficult to completely rule out all rate cut expectations for this year, as we believe this strong reading implies a delay in rate cuts rather than the Fed being unlikely to cut rates this year.&#34;
John Briggs, head of U.S. interest rate strategy at Natixis, noted, &#34;The market originally expected weak data, but the result was quite the opposite. Given the Fed's focus on the labor market, the decline in rate cut pricing is in line with expectations.&#34;
Subadra Rajappa, a strategist at Société Générale, pointed out that the stronger-than-expected January labor market data has sparked speculation about how incoming Fed Chair Kevin Warsh will handle policy. &#34;If Warsh indeed leans towards rate cuts, he may find it more challenging to persuade hawks to support a rate cut. Strong employment data and rising wages support a more cautious approach to policy.&#34;
<h2>Wall Street Institutions: Rate Cuts Delayed but Not Disappeared</h2>
Former senior advisor at the San Francisco Fed, Tim Mahedy, stated, &#34;This definitely complicates the case for rate cuts. The January data is really strong.&#34;
Stephen Stanley, Chief U.S. Economist at Santander's U.S. Capital Markets, said, &#34;The health of the January data should undoubtedly put a nail in the coffin of the view that the labor market is about to collapse, which we've heard a lot from some dovish members of the Federal Reserve.&#34;
Economists at Bloomberg Economics, including Anna Wong, commented, &#34;The January non-farm payroll report reduces the urgency for the Federal Reserve to cut rates. However, as we expect inflation to slow in the coming months—particularly as we anticipate the January CPI data to be milder than market expectations when released on February 13—we believe there is room for (Fed) policymakers to support the recovery of the labor market through rate cuts. Overall, we expect the Federal Reserve to cut rates by 100 basis points this year.&#34;
Stephanie Roth, Chief Economist at Wolfe Research, stated that current key indicators show the labor market and broader economy are stabilizing, which does not immediately support Warsh's calls for rate cuts. &#34;This makes his job a bit more difficult.&#34;
Kay Haigh from Goldman Sachs Asset Management noted that the labor market is showing some early signs of tightening again, and the Fed's focus &#34;will shift to inflation conditions as the economy continues to perform better than expected. We still believe there is room for two more rate cuts this year, but if the CPI data released this Friday surprises to the upside, it could tilt the risk balance toward a hawkish stance.&#34;
Economists Oscar Munoz and Gennadiy Goldberg from TD Securities stated that they continue to forecast a 25 basis point cut each quarter but have now adjusted the expected timing of the cuts to June, September, and December, bringing the federal funds rate to their projected endpoint of 3%. &#34;The anticipated easing will not be a result of worsening economic conditions, but rather a normalization of policy as inflation gradually returns to target.&#34;
CIBC Capital Markets economists delayed their predictions for the timing of the next Federal Reserve rate cut following the employment report released this Wednesday. They still expect two cuts this year, but now for June and July, pushing back from their previous expectations of March and June. TD Securities economists have also pushed back their expectation for the first rate cut of the year from March to June.
Bret Kenwell, an analyst at eToro, stated that this is the type of report investors should welcome—even if it gives the Federal Reserve more reason to hold steady. &#34;However, it's important to maintain an objective perspective: this is just one data point and does not erase the recent weakness presented by other data. But if the labor market is indeed stabilizing, that would be a positive for the economy and the markets.&#34;
Peter Graf, Chief Investment Officer at Amova Asset Management Americas, said, &#34;Today's employment report is a perfect score of 10, with positive surprises across the board. This should quell recent concerns about growth but puts incoming Fed Chair Warsh in a tough spot—convincing members of the Federal Open Market Committee (FOMC) to cut rates as the president requests will become more challenging.&#34;
Angelo Kourkafas, the global investment strategist at Edward Jones, stated that this report provides ammunition for the Federal Reserve's hawks, supporting a patient stance on interest rate cuts and reinforcing the narrative that the labor market is stabilizing.
He said, &#34;The pricing in the bond futures market now fully reflects that the Federal Reserve will cut rates in July rather than June. From a portfolio perspective, we expect the 10-year (U.S. Treasury) yield to retreat to the middle of the 4% to 4.5% range, and we believe the rotation towards the 'old economy' and cyclical sectors should continue.&#34;

The January non-farm payroll report may reinforce the Federal Reserve's wait-and-see attitude, making it difficult for Fed officials to find reasons for further rate cuts due to a weak labor market, providing more ammunition for inflation-wary "hawks." Strong employment data reduces the necessity for the Fed to cut rates before mid-year, but does not completely rule out the possibility of rate cuts this year. Several institutions still expect two rate cuts this year, but the timing has been pushed to the second half of the year

- The U.S. January non-farm payroll report revealed 130,000 new jobs added, exceeding expectations and causing traders to delay interest rate cut forecasts to July.  
- The report led to a sell-off in U.S. Treasury prices, with significant increases in yields, as analysts indicated the strong labor market diminishes the urgency for the Federal Reserve to cut rates.  
- Despite this data, many institutions maintain a belief that two rate cuts may still occur later this year, with focus shifting to upcoming CPI inflation data.

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How does Wall Street view January's non-farm employment? The first interest rate cut is postponed until July, and the "New Federal Reserve Communication Agency" expects a longer pause in rate cuts