Xinhua Finance, Shanghai, February 12 (Ge Jiaming) – U.S. non-farm payrolls in January exceeded expectations, while the unemployment rate came in lower than forecast. Strong jobs data prompted markets to reassess the Federal Reserve’s policy path. Traders have generally pushed back the timing of the Fed’s first interest rate cut in 2026 from June to July.

 

Many analysts interviewed by Xinhua Finance said that U.S. January non-farm payrolls greatly surpassed expectations, which may lead the Fed to delay rate cuts further. However, overall U.S. non-farm employment remains on a downward revision trend, and the labor market faces high downside risks ahead. The upside surprise in this jobs report is more likely due to seasonal distortions, model adjustments and sample volatility, and is not enough to confirm a strengthening trend in the U.S. labor market.

 

 

Data released recently by the U.S. Department of Labor shows that in January 2026, U.S. non-farm payrolls rebounded sharply to 130,000, significantly above the forecast of 65,000, marking the largest increase since January 2025. In revisions, November and December 2025 were revised down by a combined 17,000 from the previous report. Meanwhile, the January unemployment rate fell more than expected to 4.3% from the prior month.

 

Zhang Jingjing, Chief Macro Analyst at China Merchants Securities, said the stronger-than-expected January non-farm payrolls were mainly driven by education and health services. Manufacturing and business services, which had been weak earlier, also rebounded. The labor force participation rate improved, the unemployment rate edged down, and strong wage growth eased overseas market concerns about weaker-than-expected retail data previously.

 

Liu Sijia, analyst at Donghai Securities, believes that the recovery in education and health employment has solidified the foundation of the U.S. labor market. The jobs rebound may boost consumption demand for food, energy and durable goods. U.S. inflation still faces rebound risks in 2026, and the Fed’s monetary policy in the first half of the year will be “easy to tighten, hard to loosen.”

 

However, Mark Zandi, Chief Economist at Moody’s, warned that markets should not take the optimistic data lightly. Zandi noted that nearly all new jobs came from healthcare, and this single-industry-driven pattern leaves the labor market unusually vulnerable to AI disruptions.

 

“In the short term, market expectations for Fed rate cuts have cooled significantly. Given that most Fed governors and local Fed presidents are data-dependent, the better-than-expected January non-farm payrolls will delay the Fed’s rate-cut cycle, especially sharply lowering the odds of a March or April cut,” said Liu Tao, Senior Researcher at GuangKai Chief Industrial Research Institute.

 

After the January non-farm data release, market-implied odds of a Fed rate cut in March fell from 21.7% to 8%, and the probability of a cut before June dropped from 75% to 48.6%. Markets expect the Fed’s rate-cut window may be pushed back further.

 

Yi Huang, Chief Macro Economist at Huatai Securities, said the sustainability of January non-farm data remains to be seen, but it broadly supports the view that the labor market is gradually improving. He maintains his forecast that the Fed will pause rate cuts before June and deliver 1–2 cuts after the new Fed Chair takes office.

 

 

Recent comments from Fed officials have also pushed back market rate-cut expectations further. Kansas City Fed President Jeff Schmid warned on the 11th local time that with economic growth still strong and inflation elevated, the Fed should maintain tight monetary policy. He further stressed that with inflation still above target, the Fed should keep interest rates in a “somewhat restrictive” range, and premature or additional cuts could lead to prolonged high inflation.

 

Dallas Fed President Lorie Logan said that after three rate cuts in 2025, downside risks to the U.S. labor market “appear to have diminished significantly,” but rate cuts also bring upside inflation risks. She is still not confident that U.S. inflation will return fully to the Fed’s 2% target.

 

Cleveland Fed President Beth Hammack also said current monetary policy is “in a good position” and can keep rates unchanged. According to her projection, the Fed may “hold steady for a considerable period.”

 

Hammack noted that U.S. inflation remains high and has moved roughly sideways for more than two years. She expects U.S. inflation this year may stay near 3%, similar to the previous two years.

 

 

The U.S. January Consumer Price Index (CPI) will be released on February 13. Markets will closely monitor the data to judge whether the slowdown in U.S. inflation pressure is enough to support Fed rate cuts in the coming months.

 

Markets currently generally expect that U.S. headline CPI annual growth will slow to 2.5% in January from 2.7% the previous month, and core CPI annual growth will slow to 2.5% from 2.6%.

 

HSBC believes January inflation data is crucial, as many companies tend to raise prices at the start of the year, often leading inflation to exceed market forecasts. The bank expects U.S. January core CPI annual growth to remain unchanged at 2.6%, and headline CPI annual growth to fall from 2.7% to 2.5%.

 

Industry insiders believe that if January U.S. inflation data moderates as expected, markets will maintain expectations for two Fed rate cuts in 2026. If core CPI rises unexpectedly, markets may push back the first 2026 cut further to September, or even narrow the annual easing space to just one cut.

 

Lu Zhe, Chief Economist at Dongwu Securities, analyzed that in 2026, U.S. core CPI will continue a pattern of rising core goods, falling shelter services, and fluctuating non-shelter core services, with annual inflation likely to stay sticky around 3%. In the second half of 2026, risks of demand expansion and economic overheating may put greater upward pressure on U.S. core inflation by the end of 2026.