Analysis: Unexpected drop in unemployment rate severely dampens expectations of a Fed rate cut.
U.S. Treasury bonds fell as traders virtually wiped out their bets on a Federal Reserve rate cut later this month. This followed a larger-than-expected drop in the December unemployment rate, offsetting weak overall job growth. Following Friday's report, U.S. government bond prices fell, pushing yields across all maturities up by as much as 3 basis points. Bond traders maintained their forecast of two rate cuts throughout 2026, with the first expected mid-year. John Briggs, head of U.S. interest rate strategy at Natixis North America, said, "For us, the Fed is more focused on the unemployment rate than the noise in the overall data. So, in my view, this is slightly bearish for U.S. rates." The labor reports for September, October, and November were delayed due to the six-week government shutdown from October 1 to November 12. This employment data provides the first "clean" reading reflecting macroeconomic employment trends. Whether the Fed will cut rates further is considered to depend on the performance of the labor market in the coming months. Previously, in response to a weak labor market, the Fed lowered the target range for short-term lending rates at its last three meetings. However, some officials remain concerned about inflation exceeding the target, which is seen as limiting the pace of further easing. (Jinshi)