December unemployment rate drops to 4.4%… Fed's possibility of rate cut in January disappears, adjusted to June outlook

Source: BlockMedia Original Title: “No Federal Reserve rate cut in January. Employment not bad” …Wall Street expects the cut to happen in June Original Link:

Strong employment data eliminates the possibility of Fed rate cuts in January

The December unemployment rate announced by the U.S. Department of Labor came in at 4.4%, lower than market expectations, sharply reducing expectations for a rate cut by the Fed. Bond traders mostly withdrew their bets on a January rate cut, and the mood shifted to delaying the first cut of the year to June.

Short-term Treasury yields immediately rose(bond prices fell). The 2-year Treasury yield, sensitive to Fed policy, rose about 5 basis points(0.05%) during the day, reaching its highest level of the year. Meanwhile, long-term yields retraced from their highs, showing mixed signs. This is interpreted as a reduced concern that delaying rate cuts could reignite inflation.

Fed rate cut expected to move to June

The market still reflects the possibility of two cuts in 2026. However, the timing of the first cut has shifted to the end of the first half of the year. Some investors are also open to the possibility of additional cuts in Q4. Team Moshier, head of bond management at CIBC Private Wealth, said, “A January cut was always unlikely, and now it will probably happen after Q1.”

Major investment banks have also adjusted their outlooks. Morgan Stanley, Barclays, and Citi have pushed back their expected timing for Fed rate cuts compared to previous forecasts. The first cut is now likely in June. Citi has withdrawn its forecast for a January cut and shifted to a scenario of multiple cuts throughout the year.

Inflation concerns remain

The Fed has recently cut rates three times, citing a slowdown in the labor market, but the fact that inflation remains above target is a concern. John Brix, head of U.S. rate strategy at Natixis, said the Fed will likely prioritize the unemployment rate among employment indicators, and that this data is somewhat negative for rates.

Meanwhile, this employment data is notable as it is the first comprehensive indicator of the labor market flow that was delayed due to the federal government shutdown from October to November last year.

The biggest variable is inflation. The market expects that the December Consumer Price Index (CPI) to be released next week will still show high inflation. This is seen as a factor that could keep the Fed cautious for the time being.