U.S. Jobs Beat Expectations, Fed Rate Cut Outlook Fades

The U.S. labor market posted a surprise gain in June, adding 147,000 nonfarm payrolls—well above consensus expectations of around 110,000. The unemployment rate also edged down to 4.1%, reversing last month’s uptick and signaling continued resilience in headline labor data.

While the market welcomed the stronger print, the composition of job growth raised fresh concerns about momentum in the private sector and the timing of potential Federal Reserve rate cuts.

Government Hiring Lifts Headline Figures

Nearly half of June’s job creation came from the public sector, with 73,000 jobs added in government roles—particularly in state and local education. In contrast, the private sector added just 74,000 jobs, the softest monthly gain in over a year.

Average hourly earnings rose 0.2% month-over-month, marking a 3.7% year-over-year increase. The average workweek ticked down to 34.2 hours, a sign that firms may be scaling back labor demand at the margins.

Markets Reprice Fed Outlook

Equities responded positively, with both the S&P 500 and Nasdaq closing at record highs. But bond markets took a more cautious stance. 10-year Treasury yields climbed above 4.33%, reflecting shifting rate cut expectations, while the dollar gained modest ground on the back of tighter policy implications.

The probability of a rate cut at the Fed’s upcoming July meeting has now fallen to near zero. Traders are pushing their bets on easing further out, with most now looking to the final quarter of the year for the next potential move.

Labor Strength Masks Underlying Softness

Beneath the upbeat headline numbers, signs of cooling persist. Private-sector hiring has slowed, wage growth remains modest, and average hours worked continue to fall. Some sectors—particularly services and tech—are showing signs of consolidation rather than expansion.

Participation rates dipped slightly, and forward indicators suggest hiring appetite is weakening. Businesses appear increasingly cautious amid policy uncertainty and shifting fiscal dynamics, with many holding back on expansion until greater clarity emerges.

Tips for Traders

• 10-Year Treasury Yield: With yields pushing higher, duration-sensitive assets face headwinds. Watch 4.4% as the next inflection point.

• S&P 500 & Nasdaq 100 (US100): Equities remain bid, but focus may shift to sectors better insulated from rates and wage dynamics.

• USD/JPY & USD/CHF: Dollar strength may persist in the absence of imminent Fed action. Favor continuation trades on yield divergence.

• Gold (XAU/USD): Rising real yields weigh on upside. Range-bound action between $2,380–2,420 likely to persist short term.

• Rate-Sensitive Plays: With Fed repricing underway, watch SOFR futures and front-end spreads for clues on policy pivot expectations.