January Jobs Growth Comes In Hot: What the Experts Are Saying

A January jobs report that crushed expectations means the Federal Reserve will almost certainly not enact its first quarter-point interest rate cut at its March meeting, experts say. 

U.S. nonfarm payrolls increased by 353,000 in January, the Bureau of Labor Statistics said Friday, easily topping economists' estimate for the creation of 185,000 jobs. Moreover, December's payrolls were revised to 333,000 from 216,000. To put those gains in context, the economy added an average of 255,000 jobs per month in 2023. 

Industries adding the most employees in January included professional and business services, healthcare and retail trade, the BLS said. A large decline in seasonal layoffs contributed to the surprisingly strong payrolls data, says Sarah House, senior economist at Wells Fargo Economics. Government services and the leisure & hospitality sector are still playing catch up from the pandemic, the economist adds, helping drive payrolls growth.

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The unemployment rate, which is derived from a separate survey, was unchanged at 3.7% vs economists' forecast of 3.8%. The labor force participation rate was unchanged at 62.5%.

Although the January jobs report was good news for regular folks, it wasn't what the Federal Reserve wanted to see. Fed Chief Jerome Powell and the Federal Open Market Committee (FOMC) are determined to stamp out the worst bout of inflation to hit the U.S. in four decades. But the robust labor market – and rising average hourly earnings – is making the central bank's job complicated. 

January's "blockbuster" jobs and wage-growth data led markets to pare back bets on a March rate hike. Treasury yields rose across the yield curve, while interest rate traders now assign a 22% probability to a quarter-point rate cut coming at the next Fed meeting. That's down from 46% a week ago, according to CME Group's FedWatch Tool. 

With the January jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

January jobs report: The experts weigh in

"The Fed was right to be cautious in signaling near-term rate cuts at this week's FOMC meeting. U.S. payroll growth accelerated in January to an overheated 353,000 jobs, up from an upwardly revised 333,000 in December, once again blowing away the consensus forecast looking for a slowdown to 185,000 jobs. The job gains, if not revised down in future releases, will definitely put a dampener on early rate-cut prospects." – Scott Anderson, chief U.S. economist at BMO Capital Markets

"A blockbuster payroll report with 350,000 jobs created, well above expectations, with unemployment staying at 3.7%, is confirmation that the economy remains strong. This report also reduces the odds of a rate cut in March, and pushes the timing of the first rate cut to May." – Sonu Varghese, global macro strategist at Carson Group 

"Head-scratching numbers kill March stone dead, and threaten May too. If the March rate cut wasn't already dead, it is now. This is the first blowout payroll number for a while, and it is spectacular. The bottom line here is that Fed officials will regard this report as a vindication, at least for now, of their decision to resist market pressure to cut rates in March. But the May meeting is three months away, and we expect the labor market picture by then will be much less strong, and the inflation numbers will be benign, so we expect a quarter-point cut." – Ian Shepherdson, chief economist at Pantheon Macroeconomics

"Today's employment report clearly reinforces the view that a rate cut is not coming at the March meeting. Nonfarm payroll growth is humming along at a much stronger pace than previously reported, and the unemployment rate remains low at 3.7%. The doves on the FOMC should feel comforted that the labor market is not on the precipice of a material deterioration in the near term, while the hawks likely will feel emboldened to wait for at least a few more inflation data points to ensure that the inflation genie is back in the bottle." – Sarah House, senior economist at Wells Fargo Economics

"Fed Chair Powell went out of his way this week to suggest that disinflation and Fed rate cuts are independent of softer or below trend economic growth. However, today's payroll release is problematic for the Fed, which has doubled down on 'transitory.' The underlying trend in core services inflation ex-shelter or supercore inflation (a major component of the core PCE basket) is driven by wage trends. The latest numbers suggest that inflation will bottom this year well above the Fed's target, limiting the amount of rate cuts." – Phillip Colmar, global strategist at MRB Partners

"January job growth figures were strong, possibly too strong. There were multiple signs of strong wage growth which could filter through to a resurgence of inflation pressures if maintained. A rather sharp drop in the number of hours worked, however, suggests January's jump in Average Hourly Earnings could be more seasonal than a trend. February will tell us more. Seasonal adjustment factors may have played a role in boosting today's stronger-than-expected payroll figures, but a deeper look at the data suggests a possible muted contribution. Expectations as to the timing and number of Fed rate cuts this year have grown more aggressive over recent quarters as inflation has steadily declined. Fed officials, however, have offered a more tempered view and data such as today's employment report suggests that this is the right course. On the downside, the market may not get as many rate cuts as it expects, but on the plus-side, it would likely be because the economy has remained stronger than expected." – Russell Price, chief economist at Ameriprise

"The stronger-than-expected jobs report shows how the job market continues to be a bright spot within the U.S. economy. Fed Chair Jerome Powell recently signaled that interest-rate cuts may not start as soon as the market wanted, and this jobs report hasn't given him any reason to change that stance." – Joe Gaffoglio, president of Mutual of America Capital Management

"This jobs report, coupled with the strong Q4 GDP, confirms remarkable acceleration in the U.S. economy. There was a lot of noise in the data, with potential for revisions lower. It keeps a bottom on interest rates for now but also doesn't mean inflation is headed back up considering the recent productivity numbers. Longer term, stocks could be in a strong spot with accelerating economic growth supporting consumption and earnings." – David Russell, global head of market strategy at TradeStation

"The market may have seen its shadow this morning with the jobs number and strong average hourly earnings (AHE). The Fed's 'highly unlikely' for March seems applicable. Whether the Fed goes in March or May, the pivot has happened and monetary policy will be wind at the sails of fixed-income investors in this strong economic environment." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management

"On the inflation front, average hourly earnings were unquestionably hot at 0.6%, vs a 0.3% expectation, which put the year-over-year wage inflation number at 4.5%. Offsetting that to some degree is a decline in the workweek, meaning consumer income gains will be a bit less than the wage gain number might indicate. It isn't as though inflation is getting ready to reaccelerate to the upside, but numbers like this are why The Fed has been providing a message of patience as they think about reducing rates." – Steve Wyett, chief investment strategist at BOK Financial

"The U.S. labor market started 2024 with another strong jobs report. The U.S. economy is adding jobs at a fast clip, quelling fears of a recession, but also likely pushing the timing for a rate cut by the Fed farther out in the year, especially since the uptick in average hourly earnings may rekindle inflation concerns." – Eric Merlis, managing director and co-head of global markets at Citizens Bank

"Punxsutawney Phil might be predicting an early spring, but today's jobs report suggests no rate cuts until late spring/early summer (i.e., May not March). Make no mistake, this was a blowout jobs report and will vindicate the recent posturing by the Fed which effectively ruled out an interest rate cut in March. Moreover, strong job gains combined with faster than expected wage gains may suggest an additional delay in rate cuts for 2024 and should cause some market participants to recalibrate their thinking." – George Mateyo, chief investment officer at Key Private Bank

"This morning's report adds to the Fed's rationale for holding off on rate cuts. It showed very strong job growth, accelerating earnings, and a stalling in labor participation. At this stage of the cycle, these are all indicators of a tight labor market and could slow further progress in bringing inflation down to 2%. A March rate cut is all but off the table, with an initial cut around mid-year more likely, depending on the evolution of the data." – Jeff Hibbeler, director of portfolio management and senior portfolio manager at Exencial Wealth Advisors

"With payroll gains exceeding economists' estimates, and upward revisions to prior months, we now think that a March rate cut is off the table, as the unexpected strength in the economy remains the Fed's ace in the hole. With the economy adding jobs at a clip of 353,000 per month, the margin of error for sticking the soft-landing continues to widen. Considering today's jobs report, particularly the higher-than-expected average hourly earnings, cutting rates prematurely in this economy could needlessly undermine the significant progress made on inflation. We think the FOMC will push off rate cuts as long as possible, likely into May or June." – Ivan Gruhl, co-chief investment officer at Avantax

"At Thrivent, we had not been anticipating a Fed rate cut in March, and this report likely takes that off the table completely. The employment side of the Fed's dual mandate appears solid and, with inflation declining, the Fed will likely be content to watch and wait for another quarter or two." – David Royal, chief financial and investment officer at Thrivent

"We continue to expect the Fed to begin cutting the funds rate at the May meeting." – Jan Hatzius, chief economist at Goldman Sachs

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