The U.S. labor market demonstrated unexpected strength in April, with nonfarm payrolls increasing by 177,000 jobs—surpassing the anticipated 138,000. The unemployment rate remained steady at 4.2%, and average hourly earnings rose by 0.2%, slightly below the previous month’s 0.3% increase. These robust figures have led traders to adjust their expectations for the Federal Reserve’s first interest rate cut of 2025, now projecting it for July instead of June.
Prior to the release of the April jobs report, there was a 50.4% probability assigned to a rate cut at the June 18 Federal Open Market Committee (FOMC) meeting. Following the report, this likelihood has decreased to 31.8%, while the probability for a rate cut at the July 30 meeting has increased to 57%.
Economists, including David Page from AXA Investment Managers, suggest that while a June rate cut is still possible, the stronger-than-expected employment data makes a July cut more probable. Page forecasts three rate cuts in total for 2025, aiming for a federal funds rate of 3.75% by year-end.
Blerina Uruci, Chief U.S. Economist at T. Rowe Price, noted that the April payroll report indicates no significant disruptions in the labor market thus far in 2025. She maintains her projection of two rate cuts in the latter half of the year, emphasizing that market expectations for monetary easing may have been premature.
