Non-farm payroll guidance: Does it confirm Powell's brilliant move, or signal that the Fed has "surrendered too soon"?
2026-01-09 11:36:15
The first major economic data release of 2026—the U.S. non-farm payrolls report—will be released this Friday (January 9th) at 21:30 Beijing time. After a year of dramatic volatility caused by the U.S. federal government shutdown and a series of interest rate cuts by the Federal Reserve, this non-farm payrolls report will be a decisive indicator of whether the Fed's recent easing cycle was a stroke of genius or a premature response to a cooling labor market.
The main risk remains data volatility. The aftermath of the US government shutdown at the end of 2025 continues to obscure the “true” hiring trends. Furthermore, significant downward revisions to October and November 2025 data could mask strong December figures, painting a more somber picture for the quarter.
Market participants are also wary of a potential "January effect," namely the clash between rebalancing and New Year optimism and high-risk data.
Finally, Powell is facing increasing pressure as one of his last few meetings as Federal Reserve chairman. Comments by Fed Governor Stephen Milan on Thursday may foreshadow the policy direction of Powell's successor—after all, the new chairman will be appointed by the current administration.
Milan stated that he expects interest rates to be cut by 150 basis points by 2026 to boost the labor market. This contrasts sharply with the Federal Reserve's current pricing strategy.
Economists predict a modest rebound in the job market after months of distorted data. December's nonfarm payrolls are expected to see around 60,000 new jobs added, following November's 64,000.
Although the number of jobs hired is still below the historical average of over 100,000, the unemployment rate is expected to drop slightly to 4.5% (from 4.6%).
This slight decrease was primarily attributed to the return to work of furloughed federal employees and lower rounding thresholds in the household survey.
Meanwhile, average hourly earnings are projected to rise 0.3% month-over-month (3.6% year-over-year), a level the Federal Reserve considers consistent with its long-term inflation target.
(source:)
Hawkish Result (Above 85,000): An unexpectedly positive data release would indicate that the labor market is far more resilient than suggested by the Fed's recent 75-basis-point rate cut. This could trigger a "good news is bad news" reaction, as traders would be forced to rule out a rate cut in March 2026, fearing the Fed might have to pause or even reverse rate cuts to combat "sticky" inflation.
Weaker-than-expected dovishness (below 50,000): If the data falls below 50,000, it will confirm concerns about a “substantial” weakening of labor demand. This would validate the market’s current pricing in at least two more rate cuts in 2026, reinforcing the narrative that the US is in a late-stage expansionary phase of a cycle vulnerable to recession.
Market reaction to the non-farm payroll report may not be uniform, but rather will depend on the degree of deviation between the data and consensus expectations. Based on the data release and market interpretation, the following potential reactions may occur.
The US dollar index fluctuated around 98.92 in Asian trading on Friday, having touched a near one-month high of 98.99 earlier in the day. The daily Relative Strength Index (RSI) is significantly above its midline and has not entered overbought territory, suggesting a short-term bullish bias. The recent upward trend line has also shown a significant upward effect, contributing to the upside risk.
With the market already heavily betting on a dovish stance from the Federal Reserve, a stronger-than-expected report (above 75,000) could trigger a sharp short-covering rally, pushing the dollar index back up to the 100 level.
(US Dollar Index Daily Chart, Source: FX678)
If Friday night's data confirms that hiring has bottomed out, the Federal Reserve may achieve its "soft landing." However, if the three-month average continues to decline, Jerome Powell and his potential successor will face pressure to provide more aggressive liquidity, which will be the dominant theme in the markets for the remainder of the first quarter of 2026.
At 11:35 Beijing time, the US dollar index is currently at 98.92.
Risk warning before data release
The main risk remains data volatility. The aftermath of the US government shutdown at the end of 2025 continues to obscure the “true” hiring trends. Furthermore, significant downward revisions to October and November 2025 data could mask strong December figures, painting a more somber picture for the quarter.
Market participants are also wary of a potential "January effect," namely the clash between rebalancing and New Year optimism and high-risk data.
Finally, Powell is facing increasing pressure as one of his last few meetings as Federal Reserve chairman. Comments by Fed Governor Stephen Milan on Thursday may foreshadow the policy direction of Powell's successor—after all, the new chairman will be appointed by the current administration.
Milan stated that he expects interest rates to be cut by 150 basis points by 2026 to boost the labor market. This contrasts sharply with the Federal Reserve's current pricing strategy.
Consensus: Moderate Recovery
Economists predict a modest rebound in the job market after months of distorted data. December's nonfarm payrolls are expected to see around 60,000 new jobs added, following November's 64,000.
Although the number of jobs hired is still below the historical average of over 100,000, the unemployment rate is expected to drop slightly to 4.5% (from 4.6%).
This slight decrease was primarily attributed to the return to work of furloughed federal employees and lower rounding thresholds in the household survey.
Meanwhile, average hourly earnings are projected to rise 0.3% month-over-month (3.6% year-over-year), a level the Federal Reserve considers consistent with its long-term inflation target.
(source:)
Deviating from consensus: What does this mean?
Hawkish Result (Above 85,000): An unexpectedly positive data release would indicate that the labor market is far more resilient than suggested by the Fed's recent 75-basis-point rate cut. This could trigger a "good news is bad news" reaction, as traders would be forced to rule out a rate cut in March 2026, fearing the Fed might have to pause or even reverse rate cuts to combat "sticky" inflation.
Weaker-than-expected dovishness (below 50,000): If the data falls below 50,000, it will confirm concerns about a “substantial” weakening of labor demand. This would validate the market’s current pricing in at least two more rate cuts in 2026, reinforcing the narrative that the US is in a late-stage expansionary phase of a cycle vulnerable to recession.
Potential impact on the US dollar index
Market reaction to the non-farm payroll report may not be uniform, but rather will depend on the degree of deviation between the data and consensus expectations. Based on the data release and market interpretation, the following potential reactions may occur.
The US dollar index fluctuated around 98.92 in Asian trading on Friday, having touched a near one-month high of 98.99 earlier in the day. The daily Relative Strength Index (RSI) is significantly above its midline and has not entered overbought territory, suggesting a short-term bullish bias. The recent upward trend line has also shown a significant upward effect, contributing to the upside risk.
With the market already heavily betting on a dovish stance from the Federal Reserve, a stronger-than-expected report (above 75,000) could trigger a sharp short-covering rally, pushing the dollar index back up to the 100 level.
(US Dollar Index Daily Chart, Source: FX678)
Future Outlook
If Friday night's data confirms that hiring has bottomed out, the Federal Reserve may achieve its "soft landing." However, if the three-month average continues to decline, Jerome Powell and his potential successor will face pressure to provide more aggressive liquidity, which will be the dominant theme in the markets for the remainder of the first quarter of 2026.
At 11:35 Beijing time, the US dollar index is currently at 98.92.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
