(Yahoo! Finance) - A stronger-than-expected jobs report for the month of January is likely to cement that the Federal Reserve holds interest rates steady for a while.
"[The jobs report] pours cold water on the idea the Fed could cut rates again before mid-year and will fuel internal debate as to how restrictive policy is and how much slack there is in the labor market," Evercore ISI head of economics and central banking Krishna Guha said.
The economy added 130,000 jobs in January — about double the number economists had anticipated — while the unemployment rate inched down to 4.3% and the labor force participation rate edged up.
President Trump called the report "far better than expected" and said the US should be paying much less on its bonds.
"We are again the strongest Country in the World, and should therefore be paying the LOWEST INTEREST RATE, by far. This would be an INTEREST COST SAVINGS OF AT LEAST ONE TRILLION DOLLARS PER YEAR - BALANCED BUDGET, PLUS," Trump posted on Truth Social.
But with three rate cuts last fall and many Fed officials feeling enough has been done for now to support a job market that looked to be slipping last year, the January report likely reinforces policymakers' expectations that they've done enough for now. In the meantime, concerns about inflation linger.
Kansas City Fed president Jeff Schmid said Wednesday that with the cumulative rate cuts since 2024, the central bank's benchmark policy rate is no longer restraining the economy.
He said with inflation running closer to 3% than 2%, "I see it as appropriate to maintain a somewhat restrictive policy stance … Further rate cuts risk allowing high inflation to persist even longer."
Cleveland Fed president Beth Hammack, a new voting member of the FOMC, said Tuesday that she believes economic growth will pick up this year thanks to recent rate cuts and fiscal support. She expects businesses will move forward with projects and that a stronger job market will push down the unemployment rate over the course of the year.
Based on her forecast and her view that inflation is still too high, Hammack said the Fed "could be on hold for quite some time."
Separately, Dallas Fed president Lorie Logan said in a speech Tuesday that she thinks downside risks to the job market have "meaningfully dissipated" and that the three rate cuts the central bank made last year to guard against deterioration in the job market have pushed up risks for inflation. Logan said she expects strong consumer spending and business investment will support the job market going forward.
Following the release of the jobs report on Wednesday, Labor Secretary Lori Chavez-DeRemer told Yahoo Finance she believes, given birthrates in the US and lower immigration, that 50,000 new jobs per month is going to be the new normal.
While the majority of jobs created in January and over the past year have been in the healthcare and social assistance sectors, which are less immune to downturns, Chavez-DeRemer said that with investments the Trump administration has been making in data center construction, semiconductors, and the auto industry, she expects job growth to widen across more sectors, including manufacturing, which posted positive growth of 5,000 new jobs in January for the first time in months.
Joe Brusuelas, chief economist at RSM, said his base case is that the economy only needs to generate between zero and 50,000 jobs each month to keep the labor market stable.
"A labor market adding jobs at or near 50,000 per month simply does not scream further accommodation is necessary at the current time," Brusuelas said. "Should the status quo hold, any rate cuts beyond that will further call into question the credibility and independence of the central bank."
Morgan Stanley Wealth Management chief economic strategist Ellen Zentner added, "Today's data shows an acceleration in employment that was strong enough to drive unemployment lower — vindication for Chair Powell’s holding pattern."
By Jennifer Schonberger - Senior Reporter
