Wall Street comments on non-farm payrolls: January rate cut is shattered, the longer the pause in rate cuts, the greater the probability of the next rate hike

The U.S. non-farm payrolls in December exceeded expectations, and the unemployment rate was also lower than anticipated, leading traders to continue reducing bets on interest rate cuts. Analysts have stated that hopes for a rate cut by the Federal Reserve in January have been dashed, and the focus will now shift to the progress of controlling inflation. If inflation can decline further or if the labor market situation reverses, a rate cut may be possible at the March meeting. The longer the Federal Reserve pauses, the greater the likelihood of the next rate hike.

Jack McIntyre, Portfolio Manager at Brandywine Global:

"The unexpectedly strong data in the November employment report has almost extinguished hopes for further rate cuts by the Federal Reserve in the first half of 2025. The December employment report further proves to the Federal Reserve:

1. Their decision to cut rates by 100 basis points at the end of last year was a policy mistake;

2. There is an increasing tendency within the Federal Reserve to execute future rate cut plans more cautiously.

The longer the Federal Reserve pauses, the greater the likelihood of the next rate hike. While the labor market situation is very important, the key variable for both the Federal Reserve and the market remains inflation. Next week's inflation data will be even more critical. It is expected that the U.S. Treasury market will shift from a recent bear steepening to a bear flattening, and rising oil prices do not help stabilize the bond market."

Seema Shah, Chief Global Strategist at Principal Asset Management:

"The encouraging employment data is good news for the U.S. economy and the dollar, but it is bad news for the stock market seeking rate easing and a heavy blow to the global bond market, especially U.K. government bonds. The strong performance of the U.S. labor market is clearly a continuing theme, indicating that the economy continues to thrive. The Federal Reserve can confidently maintain the status quo in January, but they will need a significant surprise in inflation decline or a reversal in future employment reports to take action in March."

"For the global bond market, the strength of U.S. employment data will only increase its pressure. The peak in yields has not yet been reached, which means some markets (especially the U.K.) will face additional pressure that is unsustainable."

Lindsay Rosner, Head of Multi-Sector Fixed Income at Goldman Sachs Asset Management:

"The data is insufficient to support a rate cut in January. The U.S. labor market ended 2024 with strong job growth, a declining unemployment rate, and stable wage pressures. Today's strong December employment report dispels the possibility of a 25 basis point rate cut in January and shifts the focus to the March meeting, where further cuts will depend on the progress of inflation."

Peter Cardillo, Chief Market Economist at Spartan Capital Securities:

"This report will drive yields higher, as the labor market shows no signs of weakness.

"Combined with the uncertainty of Trump's tariff policy, this undoubtedly indicates that the Federal Reserve's pause in rate cuts will last longer than expected

"The good news is that there is no increase in wage inflation, and the decline in the unemployment rate cannot be attributed to the labor participation rate.

"This is good news for the economy, but a headache for the Federal Reserve. It is unlikely that the Federal Reserve will cut interest rates in the short term, and the pause may last until the second quarter.

"If the labor market continues to maintain this state, while Trump implements his tariff policies, then we may have already seen the end of the easing cycle."

Chris Zaccarelli, Chief Investment Officer of Northlight Asset Management:

"In a world turned upside down by financial markets, good news for job seekers is bad news for the stock market.

"Better-than-expected employment data led to an immediate drop in stock and bond prices (bond yields rose as prices and yields have an inverse relationship), as there is less reason for the Federal Reserve to cut rates further.

"While the stock market's rise does not entirely depend on rate cuts, rate cuts are beneficial for the stock market. More importantly, a loose monetary policy environment is always more favorable for stock investors than a tightening policy (or maintaining the status quo).

"In the current economic cycle, corporate earnings need to improve—not limited to large tech companies—to justify the market's already high valuations, so we remain cautious in the short term."

Sam Stovall, Market Strategist at CFRA:

"Non-farm payrolls exceeded expectations by 100,000, increasing uncertainty about inflation trends and whether the Federal Reserve will cut rates in 2025.

"The 10-year Treasury yield will remain above 4% this year, which will pose a significant challenge to the stock market. We have had a poor start to the year."

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth:

"The reaction to the stronger-than-expected employment report is entirely in line with my expectations: 256,000 jobs is good news for the general public, but not for Wall Street. The market hoped for employment data to be in line with expectations or even lower, prompting the Federal Reserve to come out of its wait-and-see stance and cut rates again.

"But the report's results were completely the opposite. The data suggests that the economy does not seem to need additional rate cuts, so the Federal Reserve will remain on hold.

"Many of the new job opportunities seem to come from the hospitality industry. If Trump were to expel 15 to 20 million people as he wishes, there would be more job vacancies."

Torsten Slok, Chief Economist at Apollo Global Management:

"Non-farm payroll data was stronger than expected, the unemployment rate was lower than expected, and private sector employment growth was robust.

"The core theme of the market remains 'maintaining higher interest rates for a longer period.' The reason for short-term rates remaining high is the strong economy, while long-term rates remain high due to both strong economic performance and concerns arising from fiscal issues."

Michael Brown, Senior Research Strategist at Pepperstone:

"I believe this will only encourage the market to remain bullish on the dollar, which has become the market's preference, further reinforcing the theme of American exceptionalism, and should keep the Federal Reserve relatively hawkish among G10 countries.

"The biggest risk to a bullish outlook on the dollar may be that participants take profits or reduce risk positions ahead of Trump's inauguration."

But some analysts are optimistic. Brian Jacobsen, Chief Economist at Annex Wealth Management:

"The knee-jerk reaction to this employment report is to think that the Federal Reserve may never need to cut rates again. In fact, why not raise rates? But the details matter; growth is primarily concentrated in non-cyclical sectors. Wages have not driven inflationary pressures. The Federal Reserve can wait to cut rates further, but unless inflation rises, there is no need to raise rates to curb inflation."