Nonfarm payrolls rose by 350,000 in January—the largest gain in over a year—sparking speculation that February’s figures may show a moderation. Market participants now assess whether the labor market is cooling, affecting expectations for Federal Reserve rate cuts in 2026.
- January nonfarm payrolls increased by 350,000, the highest monthly gain since early 2023.
- Initial jobless claims rose to 228,000 in early February, signaling potential labor market softening.
- 10-year US Treasury yield rose to 4.41%, reflecting tightened expectations for Fed rate cuts.
- S&P 500 (SPX) declined 0.6%, with the Nasdaq down 0.9% on rate concerns.
- EUR/USD fell to 1.0720 as the US dollar (USD) strengthened amid shifting macro expectations.
- Market-implied probability of a 2026 Fed rate cut dropped to 68%, down from 82% a week earlier.
January’s surge in US job creation, with nonfarm payrolls climbing by 350,000, marked a significant rebound from prior months and fueled optimism about economic resilience. However, indicators from early February suggest a potential slowdown, with initial jobless claims rising to 228,000—above the 215,000 average—hinting at early signs of labor market softening. This shift is crucial for the Federal Reserve’s monetary policy trajectory. With core inflation still above the 2% target, the pace of hiring has been a key factor in assessing whether rate cuts are warranted. The 10-year US Treasury yield climbed to 4.41% on the back of the data, reflecting investor concern that persistent labor strength could delay rate cuts into late 2026. The benchmark S&P 500 (SPX) dipped 0.6% as the rally in tech and financials paused. Equity markets reacted cautiously: the Dow Jones Industrial Average (DJI) fell 0.4%, while the Nasdaq Composite underperformed, down 0.9%, as concerns about longer-term interest rates weighed on growth stocks. The US dollar (USD) strengthened, with the EUR/USD pair retreating to 1.0720, as safe-haven demand increased amid shifting rate expectations. The upcoming February employment report, due March 8, will be closely watched for further signals on labor market sustainability. Market pricing now reflects a 68% probability of a single Fed rate cut in 2026, down from 82% a week prior, underscoring the growing uncertainty around policy timing.