Analysis: Unexpected Drop in Unemployment Rate Deals Blow to Fed Rate Cut Expectations

Odaily News U.S. Treasury bonds fell, with traders nearly wiping out bets on a Federal Reserve rate cut later this month. This followed a larger-than-expected drop in the December unemployment rate, which offset the impact of weak overall job growth. After the report's release on Friday, U.S. government bond prices declined, pushing yields higher across all maturities by as much as 3 basis points. Bond traders maintained their forecast for a total of two rate cuts throughout 2026, with the first cut expected around mid-year. John Briggs, Head of U.S. Rates Strategy at Natixis North America, stated, "For us, the Fed is more focused on the unemployment rate than the noise in the headline data. So, in my view, this is slightly negative for U.S. rates." Previously, labor reports for September, October, and November were delayed due to a six-week government shutdown from October 1 to November 12. This employment data provides the first "clean" reading reflecting macroeconomic employment trends. Whether the Fed will cut rates further is seen as dependent on the performance of the labor market in the coming months. Previously, in response to a softening labor market, the Fed lowered its target range for short-term lending rates at its past three meetings. However, some officials remain concerned about inflation running above target, which is seen as limiting the pace of further easing. (Jin10)