Traders see almost no chance of FED cut this month after data

Treasuries fell and traders all but wiped out their bets that the Federal Reserve would cut interest rates later this month after the unemployment rate for December fell more than expected.

The decline in US government debt pushed yields higher across maturities by as much as three basis points on Friday after the report. Bond traders maintained an outlook for two rate cuts overall in 2026, with the first seen by mid-year.

“This keeps us on course for them to slowly continue cutting the fed funds rates as we go through this year,” Robert Tipp, chief investment strategist at PGIM Fixed Income told Bloomberg Television. “They are on the cusp of, or in the top end of, the neutral range. So they may feel like they are not having an impact on the economy, they can stand to skip a meeting.”

The jobs data provided the first clean read on the broad economy’s employment trend after a six-week US government shutdown from Oct. 1 to Nov. 12 delayed the production of labor reports for September, October and November.

Also read: Gold prices steady as traders look beyond geopolitical concerns to US data

The case for additional Fed interest-rate cuts is seen resting on how the labor market performs in the coming months. While the central bank lowered its target band for short-term lending rates at its past three meetings in response to weakening labor-market conditions, some officials remain worried about inflation remaining above their target. That is seen limiting the pace of further easing.

“For us, the Fed will key off the unemployment rate more than the noise in the headline,” said John Briggs, head of US rates strategy at Natixis North America, “so this in my view is slightly bearish for US rates.”

Treasuries are fresh off a gain of more than 6% last year, their best performance since 2020, as investors eyed signs of a cooling job market. Following Friday’s report, traders are pricing in the next reduction coming in June, the month after Fed Chair Jerome Powell’s tenure ends, with another easing to follow in the fourth quarter.

Tariff Considerations

As the dust settles from the employment report, traders are on high alert for the possible release of a ruling on the legality of President Donald Trump’s levies. An opinion against the tariffs, which have generated hundreds of billions of dollars in revenue and eased pressure on the US budget deficit, may weigh on Treasuries.

Traders have in mind a slump on Nov. 5, when arguments suggested the court was skeptical that Trump had authority to impose the levies under a 1977 law giving the president special powers during emergency situations.

Removing tariffs would likely “rekindle fiscal concerns, presenting a risk of higher long-term yields and steeper curves,” JPMorgan Chase & Co. strategists including Jay Barry wrote in a note this week. Still, any impact “should be fairly limited,” given the administration’s ability to pursue other routes to restore most levies, they said.