U.S. January Nonfarm Payrolls Surge Past Expectations; First Rate Cut of 2026 Likely to Land in Mid-Year

Release time：2026-02-12 Publisher：GINZO

The U.S. Bureau of Labor Statistics (BLS) reported on Wednesday that nonfarm payroll employment rose by 130,000 jobs in January 2026, marking the largest gain since the second half of 2025 (all figures are preliminary). Meanwhile, the unemployment rate edged down by 0.1 percentage point to 4.3% month-over-month. Analysts noted that the report signals a stabilizing U.S. labor market, with the Federal Reserve (Fed) expected to keep interest rates unchanged in the short term.

Sector-Specific Job Trends and Wages

According to BLS data, employment growth was recorded in the healthcare, social assistance, and construction sectors in January, while jobs declined in the federal government and financial activities sectors. Breakdown shows healthcare added 82,000 jobs, social assistance gained 42,000, and construction rose by 33,000. On the wage front, average hourly earnings for private nonfarm payroll employees increased by 15 cents to $37.17, representing a 3.7% year-over-year growth.

Data Trumps Market Expectations, Raising Odds of Fed Rate Cut Delay

The market had initially forecast January nonfarm payroll growth between 50,000 and 75,000 jobs, but the actual figure far exceeded expectations. This may prompt the Fed to further postpone its rate cut timeline; however, downside risks to the labor market persist, and structural imbalances remain.

Insights from Brian Coulton, Chief Economist at Fitch Ratings

Brian Coulton, Chief Economist at Fitch Ratings, told Interface News that the January jobs report reveals two key takeaways:

Recent job growth momentum has improved. Over the three months ending January 2026, the average monthly job gain reached 73,000—a solid pace even after accounting for slowing labor force supply. “In fact, this is the strongest three-month average gain since February 2025,” he stated.
The 2025 labor market slowdown was more severe than previously estimated. Coulton highlighted that the report included significant downward revisions to 2025 employment data: full-year job gains totaled just 181,000, sharply lower than the initial 584,000. This marks the weakest job growth since the COVID-19 pandemic, creating room for the Fed’s future policy adjustments.

Views from Lu Zhe, Chief Economist at Dongwu Securities

Lu Zhe, Chief Economist at Dongwu Securities, told Interface News that the unemployment rate remaining at a moderate level reflects the U.S. labor market’s resilience, which has outperformed expectations. He attributed this strength to the supportive effects of expansionary fiscal and monetary policies, as well as seasonal factors on the economic fundamentals. Lu projected that under these influences, the U.S. economy is likely to continue outperforming forecasts in the first quarter.

Market Reaction and Rate Cut Expectations

Following the data release, U.S. stock futures and Treasury yields both rose initially but later pulled back from their highs. Currently, the market expects the first rate cut of 2026 to occur as early as June to July. According to the CME FedWatch Tool, the probability of a rate cut in March and April is below 25% for each month, while the odds for June and July stand at around 45%.

Analysis from Liu Tao, Senior Researcher at Guangkai Chief Industry Research Institute

“Short-term market expectations for a Fed rate cut have clearly cooled,” Liu Tao, Senior Researcher at Guangkai Chief Industry Research Institute, told Interface News. “Given that most Fed governors and regional Fed presidents are data-dependent, the stronger-than-expected January nonfarm payroll data will delay the rate cut process—particularly, the probability of a cut in March and April will drop significantly.”

Liu further pointed out that the better-than-expected January job growth was driven by a combination of seasonal and structural factors:

Seasonal adjustment models may have underestimated the strength of early-year hiring rebounds. Typically, January sees job recoveries fueled by post-holiday returns to work, temporary-to-permanent conversions, and the launch of government projects. Notably, early 2026 witnessed the accelerated rollout of federal and state infrastructure and clean energy subsidy programs, boosting job gains in construction and related new energy industries.
The nonfarm payroll growth exhibited clear sectoral divergence, with cyclically resilient sectors such as healthcare and social assistance continuing to expand and support employment.

However, Liu issued a caution: January’s multiple severe cold snaps in the U.S. may have impacted data collection in some regions—for instance, lower response rates in household surveys—while establishment surveys still recorded robust growth. This discrepancy may have affected the data’s reliability to some extent. Combining these factors, he questioned the sustainability of the above-expectation job growth.

“Temporary positions in a few sectors like healthcare and construction contributed most of the new jobs, but manufacturing employment remained sluggish and failed to support this round of growth, highlighting structural imbalances,” Liu explained. “Additionally, trade war-driven commodity price hikes, labor supply shortages from tighter immigration policies, and businesses being forced to replace some roles with artificial intelligence (AI) have further constrained the breadth of job expansion. Without a sustained recovery across broader sectors, future U.S. job growth may struggle to continue.”

Fed Monetary Policy and Personnel Developments

At its monetary policy meeting late last month, the Fed announced it would keep the federal funds rate target range unchanged at 3.50% to 3.75%—the first pause after three consecutive rate cuts from September to December 2025. The post-meeting policy statement noted that “economic activity has been expanding at a steady pace, job gains have remained slow, but the unemployment rate has shown some signs of stabilization, and inflation remains elevated.” It added that the Committee will “carefully assess the latest data, changes in the economic outlook, and the balance of risks” when considering the extent and timing of future adjustments to the federal funds rate target range.

On January 30, U.S. President Donald Trump nominated former Fed Governor Kevin Warsh as the next Fed Chair. If confirmed by the Senate, Warsh will succeed Jerome Powell as the new Fed Chair at the end of May 2026. Analysts expect the Fed to keep rates unchanged until the new Chair takes office in June.