What does Wall Street think about the January non-farm employment? The first rate cut has been pushed back to July, and "New Federal Reserve Communication Agency" expects the pause in rate cuts to last even longer.

U.S. January Non-Farm Payrolls Show Labor Market Surprising Strength, Delaying Market Expectations for Fed Rate Cuts; Traders Now Expect the First Cut in July Instead of June

The report released on Wednesday, January 11, Eastern Time, shows that the U.S. added 130,000 non-farm jobs in January, far exceeding the consensus expectation of 65,000 and marking the largest monthly increase in over a year; the January unemployment rate did not stabilize as expected but instead fell to 4.3%. Full-year employment data for 2025 was significantly revised downward, indicating that last year’s labor market performance was much weaker than previously understood.

Nick Timiraos, chief economics correspondent of The Wall Street Journal, known as the “New Fed News Agency,” commented that the January employment report solidifies the Fed’s resolve to keep rates paused for a longer period. Citing Fed Chair Powell’s remarks on January 28, he noted, “The economy once again surprised us with its resilience—and this is not the first time.” Timiraos believes attention has now shifted to the early-year price reset of the CPI.

This report caused U.S. Treasury prices to decline across the board, with the two-year Treasury yield experiencing its largest single-day increase since October 2025. The interest rate swap market indicates traders see less than a 5% chance of a rate cut in March, with expectations of a total reduction of about 49 basis points by December 2023, lower than the 59 basis points anticipated on Tuesday. This data makes it more difficult for Kevin Warsh, the future Fed chair nominee, to push for rate cuts.

Wall Street institutions generally believe that strong employment data reduce the need for the Fed to cut rates before mid-year but do not entirely rule out rate cuts this year. Several firms still expect two rate cuts this year, but the timing has been pushed back to the second half. The robust employment figures also ease market fears of a recession and are viewed as positive signals for risk assets.

“New Fed News Agency”: Focus on Unemployment Rate Stability

Timiraos pointed out on social media that for the Fed, the key takeaway from the January employment report will be the recent stability of the unemployment rate, especially considering that the 2025 employment growth has been significantly revised downward as expected. According to the latest revised data, the U.S. will add only 181,000 jobs in 2025, averaging just 15,000 per month, down from the previous estimate of 49,000 per month.

When asked about the impact of the revisions, Timiraos responded, “The downward revision is as expected, which in some ways makes the strong initial January figures even more noteworthy.”

He noted that attention has now shifted to the early-year CPI price reset, with the January inflation data set to be released on Friday becoming the next key indicator.

Fed’s Cautious Stance Reinforced

The Wall Street Journal reports that the January non-farm payrolls may reinforce the Fed’s cautious stance, making it difficult for officials to find reasons to push for further rate cuts amid a soft labor market.

The report suggests this could provide more ammunition for the “hawkish” camp concerned about inflation, who will point to signs that rates have not substantially suppressed economic activity. These signs include the continued decline in the unemployment rate, a decrease in the number of part-time workers seeking full-time jobs, and a reduction in the number of unemployed for over six months—all indicating that the market has stabilized after last year’s labor market weakness led to three consecutive rate cuts by the Fed.

Alongside the January employment data, the U.S. Bureau of Labor Statistics (BLS) also announced a significant downward revision of 2025 employment growth from an initial 584,000 to 181,000, reducing the monthly average from about 49,000 to 15,000. This makes 2025 the worst employment performance year since 2003, excluding years of economic crises.

This substantial revision indicates that the actual weakness of the labor market last year was much greater than previously understood.

Post-Report U.S. Bonds Plummet, Short-Term Bonds Lead

U.S. Treasury prices fell across the board after the employment data was released, with short-term bonds experiencing the largest declines and yields rising the most. The two-year Treasury yield quickly broke above 3.50%, reaching as high as 3.55%, up about 10 basis points intraday. The benchmark 10-year Treasury yield also rose above 4.20%, gaining approximately 6 basis points during the day.

Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, stated that the data suggests the Fed is “not in a hurry to cut rates recently.” However, “the market will find it difficult to completely dismiss all rate cut expectations for this year, because we believe this strong reading implies a delay rather than the Fed being unlikely to cut this year.”

John Briggs, head of U.S. interest rate strategy at Natixis, commented, “The market was expecting weak data, but the results were quite the opposite. Given the Fed’s focus on the labor market, the decline in rate cut pricing is in line with expectations.”

Subadra Rajappa, strategist at Société Générale, pointed out that the stronger-than-expected January labor market data has sparked speculation about how the incoming Fed Chair Kevin Warsh will handle policy. “If Warsh indeed leans toward rate cuts, he may find it harder to persuade hawkish voters to support such moves. Strong employment data and wage growth support a more cautious policy stance.”

Wall Street Firms: Rate Cuts Delayed but Not Off the Table

Tim Mahedy, a senior advisor at the San Francisco Fed, said, “This definitely complicates the case for rate cuts. January’s data was very strong.”

Stephen Stanley, chief U.S. economist at Santander, said, “The health of the January data should definitively put to rest the idea of a looming collapse in the labor market. We’ve heard a lot of this from some dovish Fed members.”

Economists like Anna Wong of Bloomberg Economics commented, “The January non-farm payrolls reduce the urgency for the Fed to cut rates. But since we expect inflation to slow in the coming months—especially with our forecast that the January CPI data to be released on February 13 will be more moderate than market expectations—we believe policymakers have room to support labor market recovery through rate cuts. Overall, we expect the Fed to cut rates by 100 basis points this year.”

Stephanie Roth, chief economist at Wolfe Research, said that current key indicators show the labor market and broader economy are stabilizing, which makes it harder for Warsh to advocate for rate cuts. “This makes his job a bit more difficult.”

Kay Haigh, head of asset management at Goldman Sachs, noted that the labor market shows some initial signs of tightening again, and the Fed’s focus “will shift to inflation, as the economy continues to outperform expectations. We still see room for two 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.”

Economists at TD Securities, Oscar Munoz and Gennadiy Goldberg, continue to forecast rate cuts of 25 basis points each quarter, but now expect the timing to be June, September, and December, with the federal funds rate reaching their projected terminal of 3%. “The expected easing is not due to economic deterioration but rather as inflation gradually returns to target and policy normalization proceeds.”

CIBC Capital Markets delayed their forecast for the next Fed rate cut after Wednesday’s employment report, still expecting two cuts this year but in June and July, later than their previous expectations of March and June. Similarly, TD Securities shifted their first rate cut from March to June.

Analyst Bret Kenwell at eToro said this is the type of report investors should welcome—even if it gives the Fed more reasons to hold steady. “But it’s important to stay objective: this is just one data point and doesn’t erase the recent soft data. But if the labor market is indeed stabilizing, that’s positive for the economy and markets.”

Peter Graf, CIO at Amova Asset Management Americas, stated, “Today’s employment report is a perfect 10, with surprises on all fronts. It should ease recent growth concerns but puts incoming Fed Chair Warsh in a difficult position—persuading FOMC members to cut rates as the President requests will be more challenging.”

Angelo Kourkafas, global investment strategist at Edward Jones, said the report provides ammunition for hawkish policymakers, supporting patience on rate cuts and reinforcing the narrative that the labor market is stabilizing.

He added, “The bond futures market is now fully pricing in a rate cut in July rather than June. From a portfolio perspective, we expect the 10-year Treasury yield to fall back into the 4% to 4.5% range, and we believe the rotation into ‘old economy’ and cyclical sectors should continue.”

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