One could argue that last week’s surprisingly robust jobs report has made Jerome Powell’s job harder, as it defies the narrative economists had widely believed when it came to the slowing pace of the economy.
On the other hand, some might argue that the Fed chairman’s exit from the top job at the central bank just got easier, because it may support a call for inaction by the rate-setting Federal Open Market Committee (FOMC).
Prior to Wednesday, speculators had been fairly balanced in their view on whether a 25bps cut would come at the FOMC’s next meeting in March, giving it a probability of around 40%, per CME’s FedWatch barometer. But the jobs report, showing nonfarm payroll employment rose by 130,000 in January, blew those odds out of the water: They now indicate a more than 92% likelihood of a hold at the next meeting.
That inverse relationship comes from the idea that the Fed will only continue to reduce the base rate if it needs to in relation to its mandate: Keeping inflation at 2% and maintaining maximum employment. The FOMC may be motivated to cut if job growth was slowing, in order to stimulate the economy. But if jobs look healthy then the Fed may not feel the need to cut.
Powell is facing a “puzzlement,” according to Oxford Economics’s senior economist, Bob Schwartz. He wrote to clients Friday: “Like the fictional King of Siam who grappled with what he knows and what he doesn’t know, so too must economists as well as the Fed.”
Schwartz said the employment report “flipped the no hiring/no firing narrative” that so many Fed watchers had become accustomed to, adding data from the consumer sector is also mystifying the path ahead even further.
Throughout 2025, economists had observed that consumption was being driven by wealthy consumers—without whom economic activity would stall and potentially even push the U.S. into a recession. Unsurprisingly, December data had been pencilled in as something of a given: Christmas shopping and Boxing Day sales would surely keep tills ringing.
Not so. The Commerce Department last week reported flat growth for the holiday month, compared to healthier years a month prior.
“Such confusion often leads to inertia, and we suspect that there will be no knee-jerk policy reaction to any of the week’s reports,” Schwartz suggested.
The Bureau of Labor Statistics also added to the confusion, with the Consumer Price Index (CPI) released Friday showing a modest 0.2% increase, on a seasonally adjusted basis for January, bringing the all-items index to 2.4% over the past year.
That data “should enable the Fed to cut rates two more times over the second half of the year, even as it stays on the sidelines now to assess the conflicting reports tracking the economy around the turn of the year.” Schwartz added.
Mid-year easing
While Powell may oversee no further cuts at the Fed, the cooling inflation data does bolster a dovish argument for incoming Fed chair nominee Kevin Warsh.
UBS pointed out in a note yesterday that cuts are likely to begin in the middle of this year, with Mark Haefele, the Swiss financier’s Global Wealth Management Chief Investment Officer, writing: This jobs report lowers the odds of a near-term rate cut, but we think easing inflation and moderating growth in the coming months will gradually take priority in the Fed’s decision process.”
He added: “Fed Chair nominee Kevin Warsh’s recent comments suggest a preference for looser monetary policy, as he believes current productivity trends will be disinflationary. While uncertainty surrounding Fed personnel lingers, the seven permanent FOMC Board voters, both current and prospective, tend to be moderately more dovish than the median forecast … So, we believe the Fed remains on track to ease further, and we expect two 25-basis-point rate cuts between June and September. This backdrop is favorable for equities, bonds, and gold, in our view.”
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