Fed seen on longer rate-cut pause after jobs data

• Traders now see only a 45% chance of a rate cut by April (down from 50% before the report), with June viewed as more likely timing for resuming cuts
• The Fed reduced rates by 0.75 percentage points in the prior year to support the job market, though some policymakers warned this could impede progress on above-target inflation
• The improved unemployment rate, despite weak job gains, provides the Fed breathing room to hold rates steady while waiting for clearer inflation data

Summary: Fed Expected to Delay Rate Cuts Following December Jobs Report

The Federal Reserve is likely to extend its pause on interest rate cuts following mixed December employment data, with traders now betting the central bank won't resume cuts until June 2025.

Key Data Points

The December jobs report showed the unemployment rate fell to 4.4% from a revised 4.5% in November, despite employers adding only 50,000 jobs—below expectations. While job growth momentum weakened, the improved unemployment rate provides the Fed with justification to maintain current rates while monitoring inflation data.

Market Implications

Following the report, short-term interest rate futures declined, reflecting reduced expectations for near-term rate cuts. The probability of an April rate cut dropped to 45% from approximately 50% before the report's release. Market participants now view June as the more likely timeframe for the Fed to resume monetary easing.

Policy Context

In 2024, the Fed reduced its policy rate by three-quarters of a percentage point (75 basis points) to support the labor market. However, hawkish Fed officials have expressed concerns that continued rate cuts could undermine progress on reducing above-target inflation, creating tension within the central bank about the appropriate policy path.

Bottom Line

The mixed employment data—declining unemployment despite weak job creation—gives the Fed room to maintain its wait-and-see approach. The central bank faces a delicate balancing act between supporting employment and controlling inflation, with the latest data suggesting policymakers will favor patience over aggressive rate cuts in the near term. Investors should prepare for rates to remain steady through at least mid-2025.