Analysis: Unexpected Drop in Unemployment Rate Deals a Blow to Fed Rate Cut Expectations

According to Odaily, U.S. Treasury bonds fell as traders almost erased bets on a Federal Reserve rate cut later this month. Previously, the larger-than-expected drop in the December unemployment rate offset the impact of overall weak job growth. After the report was released on Friday, U.S. government bond prices fell, pushing yields across all maturities up by as much as 3 basis points. Bond traders maintained their forecast for a total of two rate cuts in 2026, with the first expected to occur mid-year. John Briggs, Head of U.S. Rate Strategy at Natixis North America, stated: "For us, the Fed is more focused on the unemployment rate rather than the noise in the overall data. Therefore, in my view, this is slightly bearish for U.S. rates." Previously, due to a six-week government shutdown from October 1 to November 12, the labor reports for September, October, and November were delayed. This employment data provides the first "clean" reading that can reflect macroeconomic employment trends. Whether the Fed will further cut rates is believed to depend on the performance of the labor market in the coming months. Previously, to address labor market weakness, the Fed lowered the target range for short-term lending rates at each of the past three meetings. However, some officials remain concerned about inflation being above target, which is seen as limiting the pace of further easing. (Golden Ten Data)