The latest jobs report exceeded forecasts, suggesting a more robust economy than expected. According to analysts at Bank of America, this data indicates that the Federal Reserve’s rate-cutting cycle is already complete. The Labor Department reported 256,000 new jobs added last month, exceeding the forecast of 155,000. The unemployment rate also dropped to 4.1%, beating expectations.
Bank of America predicts the Fed will not lower interest rates further due to a resilient labor market and inflation risks skewed towards the upside. Instead, they believe the conversation should shift to raising interest rates if core personal consumption expenditure inflation exceeds 3% annually. This would be a sharp reversal from September’s rate cuts, which have already reduced forecasts for future cuts this year.
The Federal Reserve lowered interest rates by 100 basis points last year and forecasts for four more cuts this year have been repeatedly trimmed. However, Wall Street now expects just one cut in the third quarter, which has led to an increase in the 10-year Treasury yield to 4.76%. Some economists, such as Torsten Sløk, believe there’s a 40% chance of the Fed raising rates this year due to accelerating economic momentum.
The jobs report also shows wage inflation outpacing price inflation, indicating consumers’ purchasing power can fuel the economy even if hiring slows. However, Bank of America believes there’s a “high bar” before the Fed starts raising interest rates. The incoming Trump administration’s policies, including tariffs and tax cuts, are expected to shape market expectations, but some economists argue these initiatives could boost US jobs and wages.
Source: https://fortune.com/2025/01/11/fed-rate-cuts-over-jobs-report-unemployment-economy-inflation-hikes