Jobs data shifts Fed bets

A March jobs report showing steady hiring and slower wage growth revived market bets that the Federal Reserve could cut rates later in 2026. (bls.gov) (cmegroup.com) The Labor Department said U.S. employers added 178,000 jobs in March, while the unemployment rate held near recent levels at 4.3%. Health care, construction, and transportation and warehousing led the gains, and federal government employment kept falling. (bls.gov) Wage pressure also eased. Average hourly earnings were up 3.5% from a year earlier in March, a pace that points to less pay-driven inflation than the Fed was facing in 2025. (bls.gov) That mix matters because the Fed sets interest rates to cool inflation without breaking the labor market. In its March 17-18 meeting, the Federal Open Market Committee kept its policy rate unchanged and said inflation was still “somewhat elevated” even as job gains had remained low. (federalreserve.gov) Markets track those odds through federal-funds futures, which are the contracts behind CME FedWatch. After the payrolls report, traders leaned more toward cuts later this year than they had when February payrolls unexpectedly fell by 92,000. (cmegroup.com) (bloomberg.com 1) (bloomberg.com 2) Christopher Waller, one of the Fed governors, argued on April 17 that the labor market now needs fewer monthly job gains to stay in balance. He said net immigration was 2.3 million in 2024, then fell to a minimal level in 2025 and stayed very low in 2026, reducing labor-force growth. (federalreserve.gov) Waller also said the conflict with Iran had disrupted Middle East energy production and transportation and sent global energy prices soaring. He warned that a prolonged disruption could keep inflation higher and weigh on U.S. growth, complicating any case for near-term rate cuts. (federalreserve.gov) Fed officials were already dealing with that risk in March. Minutes from the March meeting said front-month crude-oil futures had jumped about 50% during the period, even though longer-dated prices suggested investors expected much of the shock to fade. (federalreserve.gov) The Fed’s own March projections showed officials still expected inflation, unemployment, and growth to move only gradually toward a better balance over 2026 through 2028. That leaves each jobs report doing double duty: as evidence on hiring now, and as a test of whether inflation can keep cooling without another energy shock getting in the way. (federalreserve.gov)