"New Federal Reserve News Agency": The employment report closes the door on a rate cut in January, Fed officials say they can wait before taking further action

On January 10th, the U.S. non-farm payrolls for December, released on Friday, showed a much larger-than-expected increase, and the unemployment rate unexpectedly fell, reflecting the resilience of the labor market. Nick Timiraos, a senior Federal Reserve reporter known as the "new Fed whisperer," exclaimed: "The employment report closes the door on a rate cut in January."

In a brief commentary following the non-farm payroll report, Timiraos clearly stated:

"The likelihood of a rate cut by the Federal Reserve this month is very low; the December employment report has completely ruled out that possibility."

Following this statement, Timiraos pointed out that in September of last year, the Federal Reserve began to cut rates amid fluctuations in the U.S. labor market and signs of significant cooling in inflation. Including September, the Fed has cut rates a total of 100 basis points over the last three meetings, raising the threshold for further rate cuts.

Timiraos mentioned that several Federal Reserve officials had previously stated that they needed to see signs indicating continued progress in lowering inflation or signs that a slowdown in economic activity threatens the labor market before further rate cuts could be justified.

He also raised points of focus before the second Federal Reserve meeting of this year after January. Between the January and March Fed meetings, the U.S. Department of Labor will release two more non-farm payroll reports, and during that period, Federal Reserve officials may have a clearer understanding of the fiscal, trade, and other policy changes under the new administration after the Trump administration took office.

This year's voting committee: stronger economy, higher inflation, suitable for more cautious rate cuts, must be more gradual

Coincidentally, also after the non-farm payroll report was released, Timiraos published comments from St. Louis Fed President Alberto Musalem, titled "Fed officials say further rate cuts can wait."

Musalem has voting rights on the Federal Open Market Committee (FOMC) meetings through 2025 and was the first Fed official to speak through the media after the employment report. Musalem stated that the risks of the U.S. inflation rate remaining between 2.5% and 3% had increased since the last FOMC meeting in December, and therefore he believes it is appropriate to be more cautious regarding further rate cuts.

Musalem had previously hinted at supporting the Fed's significant rate cut of 50 basis points in September last year, and this time he said:

"The situation has changed since last September. Economic data is stronger... inflation data is higher than expected. So, I have changed my assessment of the risks."

Looking ahead, Musalem believes that

"Rate cuts must be gradual and more gradual than I thought in September (last year)."

Musalem revealed that his estimated neutral interest rate level is slightly higher than that of most of his Fed colleagues, and that the current restrictive rate set by the Fed may be slightly below the appropriate level. In other words, he expects the rate level that neither overheats nor cools the economy to be slightly higher than others expect, and the current restrictive rate is still somewhat insufficient.

Musalem expressed concerns about the impact of tariffs imposed after Trump took office on inflation expectations, emphasizing the complexity of the economy and the necessity of monitoring the situation. He stated that it is too early to assert how the Fed might need to adjust its rate stance once the Trump administration broadly imposes tariffs, leading to rising prices for consumer goods and services in the Dow The "textbook response" is that if prices rise all at once, the Federal Reserve's policy outlook will not change, but it is currently unclear how any tariffs will be implemented.

After the Non-Farm Payroll Report, Wall Street Lowers Expectations for Rate Cuts This Year

Wall Street Insights mentioned on Friday that the latest non-farm payroll report showed that the U.S. added 256,000 non-farm jobs in December, marking the highest growth in nine months, with 91,000 more jobs than Wall Street expected; the unemployment rate in December did not remain flat at November's 4.2% as Wall Street expected, but instead fell to 4.1%; the average hourly wage in December increased by 0.3% month-on-month, slowing from November's 0.4%, in line with expectations, and increased by 3.9% year-on-year, below expectations and November's growth rate of 4.0%.

After the data was released, traders quickly reduced their expectations for rate cuts by the Federal Reserve this year. Swap contract pricing showed that traders expected the total rate cuts by the Federal Reserve for the entire year to be less than 30 basis points at one point, down from about 38 basis points before the data was released on Friday.

Several Wall Street institutions have adjusted their rate cut expectations.

Goldman Sachs expects the Federal Reserve to cut rates only twice this year, instead of three times, with cuts expected in June and December, eliminating the possibility of a cut in March. JPMorgan, Barclays, and Royal Bank of Canada (RBC) also no longer expect a rate cut in March.

JPMorgan expects the Federal Reserve to cut rates only in June and September this year. Barclays expects only one rate cut this year, in June. RBC believes the rate cut cycle may have ended.

Bank of America stated that the rate cut cycle has ended, and the most likely scenario is that the Federal Reserve will keep the current interest rates unchanged, with the next adjustment more likely to be an increase rather than a cut