US job growth beat expectations in May, highlighting continued labor market strength and complicating the Federal Reserve’s path to cutting interest rates amid persistent inflation pressures and renewed trade policy uncertainty.
The economy added 139,000 nonfarm payrolls last month, above economists' forecast of 126,000.
Unemployment held steady at 4.2%, and average hourly earnings rose 0.4% from the prior month and 3.9% on an annual basis, both above estimates.
Revisions to prior months were less encouraging. April’s payrolls figure was revised down to 147,000 from 177,000, and combined revisions for March and April showed 95,000 fewer jobs were created than initially reported. The labor force participation rate dipped to 62.4% from 62.6%.
“It’s clear that the economy remains resilient, with the job market holding up well,” said Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management. “(A)lthough job creation has been slowing, it is still close to 140,000 per month.”
Zaccarelli said the Fed should remain on hold for now. “The full effects of tariffs haven’t impacted inflation numbers yet and the job market isn’t deteriorating enough to force their hand, which is why we don’t expect them to cut rates until the end of this year, if at all.”
Markets reacted quickly. Stock futures rose and U.S. Treasury yields climbed as investors pared back bets on imminent rate cuts. The benchmark 10-year yield jumped, reflecting expectations that the Fed will stay higher for longer.
“The labor market’s resilience puts the Fed in a difficult spot: inflation pressures remain sticky, and the cooling many expected simply hasn’t materialized,” said Nigel Green, CEO of deVere Group. “This report puts another nail in the coffin for any talk of rate cuts in the summer.”
Green added that early signs of renewed inflation are emerging amid tariff-related cost pressures and rising wages. “Inflation isn’t going to go gently,” he said. “With job creation holding firm, there’s simply no justification for the Fed to move early.”
Chances of September cut fading
The central bank’s next policy decision is due next week, but analysts now believe that even a September rate cut may be optimistic without a sharper slowdown in hiring or a meaningful drop in inflation.
“This is a policy pivot moment, but not the one people hoped for,” Green said. “The pivot isn’t toward cuts—it’s toward patience.” He warned that interest-rate-sensitive assets, including growth stocks and emerging markets, may need to reposition in response.
With President Trump’s new tariff measures beginning to take effect, markets are bracing for further inflationary waves. Economists say the full impact may not show up in consumer price indexes for several months, but policymakers are already adjusting their expectations.
“There are deeper concerns building,” Green noted. “Commercial real estate, consumer credit, and regional banks could soon find the environment more difficult than many are anticipating.”
And with those risks mounting, Zacarelli also believes it’s a good time to stay cautious. “Under this backdrop, we think caution is still warranted because valuations are high, much of the tariff risks haven’t been removed and the economy appears to be slowing.”