January Jobs Report Beats Estimates as Fed Rate Cuts Remain on Hold

Remy: Let's get to the big story breakdown. In mid-week trade, Wall Street is rallying by at least half a percentage point, and this does come on the heels of the jobs report. We saw non-farm payrolls beat estimates, adding 130,000 workers, while the unemployment rate here in the US falling to 4.3%. Now Fed rate expectations point to the central bank holding, according to CME Fed Watch. There is a 94% chance they do so in March. Well, joining me to weigh in on the report is Sarah Foster, US economy reporter and analysts at bank rates. Sarah, great to have you here. Thank you so much for joining me.

Sarah: Thanks for having me. Great to be here.

Remy: Well, first and foremost, we finally got that jobs data. And the headline figure for non-farm payrolls came in better than expected. What do you make of what we saw on the surface? And what do the job gains actually tell you?

Sarah: Right. Well I think we're all breathing a sigh of relief right now. There have really been two camps on the Fed. On the one hand, fed Chair Jerome Powell has really pointed to stabilization in the labor market. Fed rate cuts last year have hopefully helped given some stimulus.

You know, juiced up the economy a little bit. And we did see that. I wrote down some numbers here reacting to the data. You know, we saw over the past three months job growth averaged about 73,000, which is definitely better than it was in the previous few months. But I'm really kind of hanging on to three words from Fed Governor Christopher Waller.

He's the other side of the camp here. He described hiring in 2025 as zero. ZIP. Nada. That is still the story here. This is the worst year for job growth outside of recession since 2003. And we're really hearing from workers here that they don't find very many economic opportunities out there for them if they want a jobhop.

Remy: Yeah. And Sarah, you bring up an important point, because we look at the non-farm payrolls figure as well as the decline in that unemployment rate. But at the same time, we've also been parsing through the other figures when it comes to the labor market, talking about JOLTS figures, as well as that challenger Gray and Christmas report and jobless claims and ADP. So are we still in a low, high or low fire environment or are we seeing something else occurring?

Sarah: That is the ultimate question, and it is incredibly difficult to know whether the dam is starting to break here. I think partially because you do see revisions and this isn't any fault with the data. It's just a natural cycle of new data coming in. You know, tax collection from the BLS is what really results in these revisions from from the payrolls numbers. But these three private sector reports are really kind of showing these yellow warning signs. You know, the ratio of job openings for every person who's counted as unemployed is the lowest since about 2017, 2018. The number of job openings is also lower than it was pre-pandemic levels.

It's back to those, you know, Great Recession recovery eras. This is not a good labor market for people who want to find a new opportunity. And I think, you know, as you're looking forward, a fed official who's trying to decide what to really make of all of these conflicting signals, I think it is a little bit of a story of where we are going and where we have been.

There is a lot of optimism about the economy, especially as we look at above trend growth expected for the year, you know, higher tax refunds that maybe could use up consumer spending a little bit. But this is certainly an economy and a labor market that's hanging in the balance. And workers are really getting caught in the middle of it.

Remy: Yeah. And Sarah, speaking of which, Americans who are watching this right now and are trying to figure out what's actually happening and what it means for them, what would you say to them, especially given the elevated rates of where the fed is right now and your expectation for stimulus, as you just mentioned?

Sarah: Yeah. Something I have in conversations with a lot of everyday people is how do they reconcile the data telling a positive story with their own experiences of still dealing with elevated inflation at their grocery store, at the gas pump? Still, you know, finding that there aren't very many job opportunities out there. I think one challenge of above trend growth, as we talk about it, as it really juices up those headline unemployment, those headline GDP numbers, is that it's really kind of it's really kind of dragging up the averages.

Are these affluent households. And so the experience of everyday people is not so reflected in the data. And I think when you're looking forward, you know, planning household decisions, we often hear from Americans that on the lower income of the spectrum, they still struggle. About 22% would pay for an emergency $1,000 expense, as opposed to about 40% of those who make $100,000 or more a year.

And so it is a really difficult time. The big question, I think, for 2026, in the economy is it is growing and optimism is rising, but it's growing. For whom? Who is benefiting from that?

Remy: Yeah. And as you mentioned, we continue to hear about this k shaped economy. But we also know that fed officials are closely watching the economic data. We will be getting inflation at the end of this week. So as it stands right now, what is your rate outlook for the central bank.

Sarah: We put out forecasts earlier this year. We projected three rate cuts. So we still think the direction of travel is on the way down. Probably early this year it would be pretty difficult unless you were to see a material change and unemployment for the fed to continue cutting interest rates. Of course, the elephant in the room is how are the new fed officials going to change the the tone and the environment inside the room? You know, we hear from Kevin Warsh, who is Trump's pick to lead the to be the next fed chair, that he thinks that the fed should be cutting interest rates more. Fed Governor Stephen Miran and of course, Fed Governor Christopher Waller are all in that camp. the changing makeup of the fed, too, is that there's other regional fed presidents who are worried about inflation.

You know, fed governor or Fed Chair Jerome Powell is also kind of, you know, in the middle between cotton, between this rock and this hard place of higher inflation and lower, you know, hiring. So it's going to be really difficult. And I think the ultimate thing to watch is just all of this incoming data.

And whether, you know, the inflation data that we get this week, whether it continues to confirm the story that might have been scarred from the government shutdown that inflation is is continuing to cool

Remy: And Sarah, before I let you go. We are looking at elevated levels for the Dow, Nasdaq and S&P this morning ahead of the market open. But we know the stock market is not the economy. So what do you think all of this means when it comes to Wall Street?

Sarah: I think this is just continuing to be a K shaped economy across everywhere you look, whether it's the economy, the economic data or the stock market. You know, time will tell whether these higher profits that we see from companies, you know, investing in AI and intellectual property, whether that will actually benefit workers or whether it's just something that, you know, higher efficiency and better productivity that comes at the expense of future of less hiring, if that's the ultimate narrative.

Remy: Okay, Sarah. Well, it was great having you on the show. Thank you so much for joining me. And thank you so much for sharing all of your insights. Thank you.