Summary of June NFP Shock: 147K Jobs Kill Fed Cut Hopes

Author: James Hyerczyk

Published: July 04, 2025

Overview

The June 2025 Non-Farm Payroll (NFP) report revealed a surprising addition of 147,000 jobs, significantly exceeding the expected 110,000. This unexpected surge, coupled with a drop in unemployment from 4.2% to 4.1%, has led to a dramatic shift in market expectations regarding Federal Reserve interest rate cuts.

Market Reaction

Following the report, the odds of a rate cut in July plummeted from 23.8% to just 4.7%. Analysts, including Jeff Schulze from ClearBridge Investments, indicated that this report effectively eliminates the possibility of a July rate cut, with September now seen as the earliest opportunity for monetary easing.

Fed's Stance

Goldman Sachs’ Lindsay Rosner noted that the stronger-than-expected jobs report is unlikely to change the Fed's cautious approach, as the central bank remains focused on inflation risks rather than employment metrics.

Composition of Job Gains

While the headline job numbers were impressive, the underlying data presents a more nuanced picture. Government hiring accounted for 73,000 of the new jobs, while the private sector contributed only 74,000, marking the weakest growth since October. This raises concerns about the sustainability of job growth.

Additionally, federal employment saw a decline of 7,000 jobs due to cuts in the Department of Government Efficiency, while state and local governments added 40,000 jobs, primarily in education. The healthcare sector also showed strength with 39,000 new positions.

Wage Growth Trends

A positive aspect of the report was the moderation in wage growth, with average hourly earnings increasing by only 0.2% month-over-month and 3.7% year-over-year. This suggests a cooling in wage-related inflation, potentially providing the Fed with some leeway despite the strong employment figures.

Investor Reactions

In response to the jobs report, Treasury bonds experienced a decline, with two-year yields rising by 8 basis points as investors adjusted their expectations regarding rate cuts. Financial stocks benefited from the shift towards a higher-for-longer interest rate environment, while growth stocks faced challenges due to sustained high borrowing costs.

The U.S. dollar strengthened against major currencies, as the reduced likelihood of easing made U.S. assets more attractive to global investors.

Conclusion

This jobs report marks a significant transition from a Fed-driven market to one driven by economic fundamentals. With nearly half of the job gains coming from government rather than private industry, investors are advised to focus on corporate earnings and economic resilience rather than relying on monetary support. The current economic strength suggests that growth will be the primary driver of returns moving forward.

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