Fed’s Path to More Rate Cuts Challenged by Jobs Surprise

Unexpectedly strong employment data for January reduces the chances the Federal Reserve will see a need to cut interest rates again by midyear as the most concerning possibilities for the trajectory of the labor market seem more remote. Worries about rising unemployment that prompted three rate cuts at the end of 2025, before a pause in January, were likely eased by numbers out Wednesday showing 130,000 jobs were added last month, and unemployment fell to 4.3%. Former Treasury official Kitty Richards joins Balance of Power to discuss saying the very anemic job growth last year in the US matches the low expectations workers have been expressing in surveys about the labor market. Economists cautioned that the upbeat January numbers could yet be revised lower, and that hiring continues to be dominated by a handful of sectors, primarily health care. Revisions to last year’s data showed job gains averaged just 15,000 a month, down from the initially reported 49,000 pace.

Yet the bounce in January will calm fears that unemployment was set to keep climbing amid worries over the impact of artificial intelligence and widespread concerns that companies were putting hiring plans on hold, said Stephen Stanley, chief US economist at Santander US Capital Markets LLC.

WATCH: Unexpectedly strong employment data for January reduces the chances the Federal Reserve will see a need to cut interest rates again by midyear as the most concerning possibilities for the trajectory of the labor market seem more remote. Former US Treasury official Kitty Richards joins “Balance of Power” to discuss.

“The health of the January numbers certainly should put a nail in the coffin of the idea that the labor market is on the cusp of falling apart, which is what we were hearing a lot from some of the doves of the Fed,” Stanley said.

Kansas City Fed President Jeff Schmid, speaking Wednesday, said the central bank needs to keep rates at restrictive levels to continue putting downward pressure on inflation, and added he’s not seeing many indications of restraint in the economic data.

President Donald Trump continued calling for more rate cuts. In a social media post after the jobs data were released, Trump hailed the “GREAT JOBS NUMBERS” and said the US should be paying the lowest interest rates globally.

Trump’s National Economic Council director, Kevin Hassett, told the Fox Business Network there is “plenty of room for the Fed to cut rates,” citing a big supply shock from AI that will boost growth without creating inflation.

Kevin Warsh, whom Trump has said he will nominate to take over as Fed chair after Jerome Powell’s term ends in May, has echoed those views. Fed watchers cautioned that it’s too soon to make calls on where the economy will be by June — when Warsh would chair his first policy meeting, if he is confirmed by then.

For now, key indicators are suggesting a firming labor market and broader economy, none of which immediately lend themselves to Warsh’s calls for lower rates, said Stephanie Roth, chief economist at Wolfe Research.

“It makes his job a little bit harder,” she said.

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