US jobs data surprises to the upside, and boosts stocks and pushes back Fed rate cut expectations

This was an unusual payrolls report for two reasons. Firstly, because it was released on  Wednesday, and secondly, because it included the 2025 revisions alongside the January NFP figure. The revisions suggest there was virtually no jobs growth in the US last year, with a downward revision of 862k, there were four months in 2025 that saw negative NFP prints.

Resilient US labour data boosts economic outlook

However, the labour market has picked up as we move into 2026 and seems to be resilient to the structural challenges that it faces including demographic change, a massive reduction in immigration and a continued hangover from DOGE Federal job cuts. Non-Farm Payrolls grew by 130k last month, double what was expected by economists and the unemployment rate fell to 4.3% from 4.4%. Private sector payrolls were 2.5 times analyst estimates at 172k, which suggests that as government jobs moderated last month, the private sector was there to pick up the slack. Wage gains were also strong.

US labour market gaining momentum

Overall, jobs growth was generally weak in 2025, however, in recent months US jobs growth has started to accelerate. The 3-month average for payrolls is 73k, up from 17k in December. This suggests that the US labour market is gaining momentum.

One conundrum about the US economy in 2025 was the weak labour market combined with strong economic growth. However, it seems like the US labour market turned a corner at the end of 2025, and since the labour market is a lagging economic indicator, we could see further strength in the jobs data as the labour market plays catch up with the real economy.

Market reaction sees scaled back rate cut hopes, but the dollar is still weak

The market reaction to this upside labour market surprise was big. US Treasury yields are higher across the curve, and the 2-year yield is higher by more than 6bps on Wednesday. This initially lent some support to the dollar, the dollar index spiked higher, led by USD/JPY, although it has given up these gains as we move towards the US open. It appears that the market is unwilling to ditch the weak dollar theme right now, especially as Donald Trump has threatened to withdraw from the North American trade pact, adding to US trade policy uncertainty.

Strong NFP supports continued gains in US equities, but no third rate cut

US stocks are extending gains in the pre-market as the data supports a stronger economic outlook for the US. There has also been a reduction in US rate cut expectations, there is now just 2 cuts expected from the Fed this year, and we think that today’s data will put to bed hopes of a third rate cut for this year. The timing of the first Fed rate cut has been pushed back to July from June, and unless we see a large downside surprise in US CPI on Friday, it is hard to see a rate cut in the US in the first half of this year.