Fed Stays Cautious on Rate Cuts as U.S. Jobs Market Holds Steady

Federal Reserve policymakers are holding firm on interest rates, signaling no urgency to cut despite political pressure and ongoing trade policy shifts. Friday’s jobs report reinforced that stance, showing a steady 4.2% unemployment rate and 139,000 new jobs added in May. While this is slightly below 2023’s monthly average of 160,000, it suggests a gradual slowdown rather than a sharp downturn in labor demand.

President Donald Trump urged the Fed to slash rates by 100 basis points, calling it “rocket fuel” for the economy. However, Fed officials remain cautious. Philadelphia Fed President Patrick Harker described the report as “solid,” noting now is the time for stability, not action.

Financial markets are pricing in a potential rate cut in September, with a second reduction possibly coming by year-end. But after the employment data, expectations for a third cut have faded. Analysts say persistent job strength gives the Fed room to wait, especially amid uncertainties around rising tariffs and inflation risks.

Despite some softening in job creation—particularly in manufacturing, which posted its worst month since January—gains were still seen in healthcare and select sectors. The labor force also contracted by the most in 17 months, raising concerns about long-term economic momentum.

Fed officials remain wary of preemptive moves, particularly as tariffs may push prices higher and rekindle inflation. According to Krishna Guha of Evercore ISI, the central bank sees limited downside in maintaining a “modestly restrictive” stance for now, preferring to monitor further data before adjusting policy.

The message is clear: unless labor or inflation trends shift dramatically, the Fed is unlikely to act before late summer.