US Stocks Today | Fed seen holding rates longer as January US jobs data beat masks sharp 2025 slowdown

Federal Reserve policymakers are expected to keep U.S. interest rates on hold for longer after January employment data showed stronger-than-expected job gains, even as major revisions revealed that payroll growth nearly stalled through much of last year, according to a Reuters analysis of the latest labor market report.

Data from the U.S. Bureau of Labor Statistics showed that nonfarm payrolls rose by 1,30,000 in January, significantly above the 70,000 increase forecast by economists in a Reuters poll. The unemployment rate edged down to 4.3% from 4.4%, suggesting the labor market entered 2026 on firmer footing than many had anticipated.

The figures follow a 10-2 vote by the Federal Open Market Committee last month to hold the benchmark overnight interest rate in the 3.50%–3.75% range, after cutting rates at each of the final three meetings of 2025. The stronger January reading is likely to reinforce the Fed’s wait-and-see approach, particularly as inflation remains above the central bank’s 2% target, according to Reuters.


Interest-rate futures markets have reflected this shift. Traders continue to price in a possible rate cut at the Fed’s June 16–17 meeting, but now assign nearly a 40% probability to no move, up from around 25% before the jobs data.

Some policymakers view recent labor market trends as structurally driven. Kansas City Fed President Jeffrey Schmid has indicated that slower job growth may be tied more to demographic changes and immigration policies than to weakening labor demand, a perspective that previously led him to dissent from rate cuts late last year.

At the same time, revisions to last year’s employment data painted a far weaker picture of 2025. According to Reuters’ review of the revised BLS figures, average monthly job growth last year was just 15,000, a pace more typical of recessionary periods than healthy economic expansions.

Reuters reported that a sharp slowdown in immigration during President Donald Trump’s first year back in office was likely a key factor behind the hiring slowdown. A smaller labor force reduces the number of jobs needed to maintain balance, complicating efforts to judge the true strength of labor demand.

The employment picture has been further complicated by signs of rising productivity. Reuters cited economists who pointed to the adoption of artificial intelligence and corporate efforts to improve efficiency amid uncertainty over tariffs and other policies as factors allowing firms to grow output with fewer workers.

U.S. gross domestic product expanded at an annualised pace of 4.4% in the third quarter, and while growth is expected to cool somewhat in 2026, it is still projected to exceed the sub-2% pace that Federal Reserve officials traditionally consider the economy’s long-run sustainable growth rate.

According to Reuters, BlackRock’s global fixed income leadership has highlighted that growth at this pace would typically require significantly stronger hiring, suggesting the divergence between output and employment could indicate the early stages of a productivity-led expansion.

However, Fed Governor Christopher Waller has warned that the labor market in 2025 was weaker than widely appreciated and could deteriorate further, raising the risk that the current low-hiring, low-layoff environment may not persist.

Overall, January’s stronger payrolls give the Federal Reserve room to keep policy steady in the near term, but the sharp slowdown revealed in last year’s revisions ensures that concerns about labor market weakness — and the timing of future rate cuts — will remain central to the policy outlook.