Fed likely unmoved despite uneven May jobs report

Investing.com -- Despite President Trump’s strong push for rate cuts, today’s jobs report suggests the labor market remains resilient, leading economists to believe the Federal Reserve and Chair Jerome Powell are likely to stay on pause for now.

Today’s nonfarm payroll report showed the U.S. economy added 139,000 jobs in May, which was above the consensus of 126,000 job additions.  A drop in labor force participation to 62.4 percent helped keep unemployment steady at 4.2 percent. Payroll gains were led by health care and leisure and hospitality, with minimal change elsewhere. Wages rose 0.4 percent, while the household survey showed a 696,000 job decline.  Notably, the jobs numbers for April and March were revised lower by 95,000 jobs combined.  

Today’s jobs report follows labor market data earlier this week showing job openings rose to 7.4 million in April from 7.2 million in March, while jobless claims increased to 247,000 for the week ending May 31, near the upper end of their 12-month range.

UBS Wealth Management Senior U.S. economist Brian Rose said that while today’s employment report was mixed, the jobs market is not weak enough to warrant rate cuts at this time. He sees the fed on hold until September.

“In our view, the labor market is not showing the type of weakness that the Fed would need to see in order to consider cutting rates at the June FOMC meeting,” Rose states. “We expect to see further softening in the second half of 2025 as tariffs and other policy measures weigh more heavily on the economy, leading the Fed to start cutting rates in September.”

Gilles Moëc, Group Chief Economist at AXA Investment Managers, echoed that sentiment, saying there are "still too many jobs to sway the Fed."

“… in a nutshell, this Employment Report, despite some problematic details, does not provide the “smoking gun” which could sway the Fed out of its current “wait and see" attitude, especially since wages continue to grow at a relatively healthy pace,” Moëc commented. “Given the risks of an impending inflationary shock, it would take a tangible worsening of the hard data for the Fed to re-think its stance.”

David Doyle, head of economics at Macquarie, said the May employment data contained “mixed signals”.  He highlighted that the 10-year yield rose, and market expectations for Fed rate cuts in 2025 fell to 45 basis points from 54 basis points after the data, reflecting reduced fears following weaker economic reports earlier in the week.

"Looking ahead, we expect the labor market to struggle, but not deteriorate sharply," Doyle commented. "One source of resiliency that may prevent a steep rise in unemployment is low labor force growth stemming from a curtailment of immigration and elevated retirements."