January Jobs Report Keeps Rates on Pause: What the Experts Are Saying

Jobs growth slowed in January but a downtick in the unemployment rate, an uptick in wage growth and revisions to prior hiring figures should keep the Federal Reserve on hold when it comes to interest rates, experts say.

U.S. nonfarm payrolls expanded by 143,000 last month, the Bureau of Labor Statistics said Friday, below economists' forecast for the creation of 170,000 jobs. While employment in November and December combined was revised higher by 100,000 jobs, the annual revision to 2024's numbers revealed that average monthly hiring was 166,000, lower than the initial report of 186,000.

The unemployment rate, which is derived from a separate survey, declined to 4% from 4.1% the prior month. Economists expected the unemployment rate to remain unchanged. Average hourly earnings increased 0.5% in January, which was higher than forecast.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

The Fed has a dual mandate of maximum employment and stable prices, which are often in tension. The new administration's regulatory and trade agenda has made the Federal Reserve's rate-setting committee, the Federal Open Market Committee (FOMC), more attentive to inflation risks.

"The Fed will likely be pleased to see the relatively modest headline number, but the revisions and the increase in average hourly earnings may give the Fed pause with respect to future rate cuts," writes David Royal, chief financial and investment officer at Thrivent. "The likelihood that the next Fed move could actually be a rate hike later this year may be underappreciated by the market."

The FOMC wrapped up its December policy meeting by cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, to a target range of 4.25% to 4.50%.

As of February 7, futures traders assigned a 94% probability to the FOMC keeping interest rates unchanged at the next Fed meeting, up from 84% a week ago and 62% one month ago, according to CME Group's FedWatch Tool.

With the January jobs report now a matter of record, we turned to economists, strategists, portfolio managers 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

"Markets are currently viewing the January employment report as a positive surprise with the U.S. dollar and Treasury bond yields moving higher on the report. This Employment report cements the view that the Fed could be on hold for a considerable time before cutting rates again. The 10-year Treasury yield is up about 5.6 basis points at the time of this writing, and the Fed funds futures market is only placing a 10% probability of a March rate cut, down from 15% yesterday." – Scott Anderson, chief U.S. economist at BMO Capital Markets

"The headline jobs number fell short of expectations, but with an upward revision to last month's print, falling unemployment and slightly stronger wage growth, today's report reinforces a solid labor market. The bond market had already been pricing a low probability of a March rate cut. This report solidifies our view that the earliest the Fed would cut is June or July. Markets expect roughly two rate cuts over the next two years, but the Fed remains data-dependent. Right now, the data points to strong GDP growth, a resilient labor market, and contained inflation." – Mike Sanders, head of fixed income at Madison Investments

"Mixed items here. Weak headline number with a miss to the downside, however a positive prior revision and an unemployment rate that ticked down to 4%. This month's release was impacted by one-off factors including wildfires in California and a cold snap in other parts of the country. TLDR: we think the Fed is likely to be cautious about reading too much into today's report." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management

"This report showed a tick lower in the unemployment rate, a strong pace of wage gains and upward revisions to prior months' data – all amid the big jump in the employable population estimate. At the headline level, this is a strong labor market that bolsters our outlook for a continuation of the economic expansion in the year ahead. There are tons of nuances we can analyze in the data, but the key takeaway is that this doesn't change the narrative underpinning the Fed's patience: The labor market is in good shape. Inflation risks are still present, but they have moderated meaningfully. The next policy rate move still looks most likely to be a rate cut, but there isn't an obvious reason to act quickly right now – especially given policy uncertainty out of D.C." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"A lower-than-expected January payrolls number was more than offset by upward revisions to November and December's totals and a downtick in the unemployment rate. Those who'd hoped for a soft report that would nudge the Fed back into rate-cutting mode didn't get it." – Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management

"All told, the economy created fewer jobs than we previously thought last year, but the trend no longer appears to be deteriorating. We continue to anticipate a relapse mid-way through 2025, given the muted level of hiring indicators and elevated uncertainty about the new administration's economic policies. But the near-term resilience of the data renders our forecast for the FOMC to ease policy in March unsustainable. We now remove one quarter-point easing from our forecast, but still expect easings in June, September and December, as unemployment starts to rise again and core PCE inflation falls, despite tariffs." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

"With unemployment ticking lower and consistent job creation, factoring in the impact from California wildfires, the strength of the headline numbers conceal a more fragile state. When you dig into the unemployment data, increasing numbers of job leavers and reentrants were offset by the recent slowdown in layoffs which, along with fewer openings, highlights an increasingly difficult environment for job seekers. While solid growth in average hourly earnings likely benefits from calendar-based increases, we expect some downward pressure on wages ultimately putting the consumer in a more vulnerable position to absorb higher inflation costs. Jobs added have skewed towards consumer-facing roles, further undermining the resilience of the labor market should spending pull back." – Tim Ellis, research analyst at Girard, a Univest Wealth Division

"It may not have been a goldilocks report, but it was close enough. Given the scope of revisions in the January report, there's certainly some noise to filter through. Even so, the data points to a labor market that regained some momentum in recent months.The biggest wild card today is the uncertainty surrounding the Trump administration’s policy priorities and how aggressively they will be pursued. Most notable is the renewed risk of upward pressure on prices should the full slate of proposed tariffs become reality, as well as the potential drag on growth that could also result. As the events of the last week demonstrated, the only thing that's certain about the scope and timing of potential tariffs is that both expectations and reality can change quickly. That leaves the Fed with a need to proceed cautiously and with a steady hand to execute policy based on the reality of the data rather than the potential of what may or may not come to fruition as the Trump administration’s policy takes shape." – Jim Baird, chief investment officer at Plante Moran Financial Advisors

"While the January payroll number was lower than forecast, much of the underlying data was strong, highlighted by the upward revisions, increase in average hourly earnings and decline in the unemployment rate. The labor market still shows signs of strength and resiliency, so all eyes will likely shift to inflation data to signal the future course of interest rates." – Eric Merlis, managing director and co-head of global markets at Citizens

"The January headline jobs number came in at 143,000 with strong revisions for the month of December. The report showed a domestic labor market that keeps on dancing to a positive tune. On the negative side of the ledger was average hourly earnings, which exceeded expectations at a month-over-month clip of 0.5%. This level of growth in wages should keep rate cuts by the Fed on the back burner for now." – Mark Gibbens, investment strategist at BOK Financial

"Overall, a mixed report, as can be seen by the initial reaction by the stock and bond market, but nothing in the report would appear to cause the Fed to alter course over the near term." – Dustin Thackeray, chief investment officer at Crewe Advisors

"Labor market conditions remain healthy, thus providing little expediency for Fed rate cuts anytime soon. Though not a positive for the housing market, trading a strong job market against the loss of a few quarter-point rate cuts is a favorable exchange. We expect a further moderation in inflation rates over the next several months. Such progress should allow Fed officials to trim their interest rate targets in the second half of the year, but strong economic conditions should also give them the leeway to act judiciously." – Russell Price, chief economist at Ameriprise

"Job creation remains strong, even if below expectations, and that is constructive for consumer spending and economic growth. The mid-cycle expansion remains alive and well. A cooling labor market should make the Fed happy, especially amidst the surrounding geopolitical noise on funding freezes and tariffs. This keeps a rate cut on the table for later this year but is not really a source of concern. The jobs report aligns with fundamentals during earnings season. Continued growth in services and a rebound in manufacturing makes for a solid backdrop, but investors have an opportunity to focus on key themes that could outperform broader indexes like AI, infrastructure and defense." – Scott Helfstein, head of investment strategy at Global X

Related Content

• All 30 Dow Jones Stocks Ranked: Buy, Sell or Hold?
• Stocks With the Highest Dividend Yields in the S&P 500
• Analysts' Top S&P 500 Stocks to Buy Now