US jobs report shows 92K drop, but here's why Fed may still hold rates

The US labor market showed signs of cooling in February after nonfarm payrolls unexpectedly fell, and unemployment also came a notch higher than expected, complicating the picture for the Fed ahead of its rate decision as it weighs a weak jobs report against the fuel price-led inflationary risks caused by the Middle East conflict. Nonfarm payrolls declined by 92,000 jobs last month, following a downwardly revised increase of 126,000 in January, according to data released Friday by the Labor Department’s Bureau of Labor Statistics. Economists polled by Reuters had expected payrolls to rise by about 59,000 jobs after January’s previously reported gain of 130,000.The unemployment rate stood at 4.4%, compared with expectations of 4.3%. Economists say concerns about the labor market would intensify only if the jobless rate climbs above roughly 4.5%.The February figure marked a significant miss compared with expectations, with economists’ forecasts ranging from a loss of 9,000 jobs to a gain of as many as 125,000 positions.Financial markets reacted negatively to the weaker-than-expected employment data. Futures tied to the Dow Jones Industrial Average fell by 366 points, or about 0.7%, while S&P 500 futures dropped 0.8% and Nasdaq 100 futures declined around 1%.In the UK, the FTSE 100 dropped by 1%, its lowest level since February 6. https://twitter.com/StockSavvyShay/status/2029914768317034635 Labor market disruption from strikes and weatherPart of the weakness reflected temporary disruptions, including a strike involving roughly 31,000 healthcare workers at Kaiser Permanente and adverse weather conditions during the month.Employment in the healthcare sector declined as a result of the strike, while jobs in the information sector and the federal government continued to trend lower.Economists also noted that February’s decline followed unusually strong hiring in January, suggesting some of the drop may represent a normalization after earlier gains.January’s payroll growth was boosted by updates to the Bureau of Labor Statistics’ birth-and-death model, which estimates the number of jobs created or lost as businesses open and close. The healthcare strike affecting workers in California and Hawaii has since ended, which could help employment rebound in the coming months.Despite the weak hiring data, wage growth came in stronger than expected. Average hourly earnings rose 0.4% in the month and were up 3.8% from a year earlier, both about 0.1 percentage point higher than economists had forecast.Revisions deepen concerns about job momentumThe latest report also included downward revisions to prior months, adding to concerns about the underlying pace of job growth.December’s payroll figures were revised to show a loss of 17,000 jobs rather than the previously reported gain of 48,000. January’s employment growth was also trimmed slightly, with payroll gains revised down to 126,000 from 130,000.The labor market has appeared to be stabilizing after a difficult 2025, when hiring slowed amid uncertainty tied to sweeping tariffs introduced by President Donald Trump under emergency trade powers.“I think it just tells us that the hopes that the labor market was steadying, maybe that was too much,” Mary Daly, president of the Federal Reserve Bank of San Francisco, told CNBC. “We also have inflation printing above target and oil prices rising. How long they last, we don’t know, but both of our goals are at risks now.”Additional factors weighing on labour market outlook Additional factors are also weighing on the labor market outlook. The Bureau of Labor Statistics recently incorporated updated population controls that had been delayed due to last year’s 43-day government shutdown. Meanwhile, tighter immigration policies have reduced labor supply, contributing to slower workforce growth.According to the Census Bureau, the US population grew by just 1.8 million people, or 0.5%, to 341.8 million in the year ending June 2025.Why the Federal Reserve might still hold benchmark rateNormally, such a weak report would trigger expectations of an interest rate cut by the Federal Reserve. However, the Middle East crisis and the surge in oil prices have complicated the situation.With Middle East tensions pushing gasoline prices higher and raising inflation risks, policymakers are widely expected to keep interest rates unchanged at their next meeting on March 17–18, maintaining the benchmark rate in the 3.50% to 3.75% range.“The February payroll report saw a big negative surprise with job losses and a higher unemployment rate, a reminder that labor market risks haven’t disappeared," said Sonu Varghese, chief macro strategist at Carson Group."At the same time, inflation is already elevated even before the upcoming energy price shock and AI-related bottlenecks. That’s going to stay the Fed’s hand when it comes to interest rate cuts - it’s unlikely we see cuts anytime soon.”The post US jobs report shows 92K drop, but here's why Fed may still hold rates appeared first on Invezz