As 2026 begins, traders' attention is quickly focused on a major economic report—the US December non-farm payrolls (NFP) data. For the past two years, inflation has been the core narrative dominating market pricing, but as price pressures gradually ease, the focus of policy discussions is quietly shifting: have growth and employment cooled significantly enough to prompt the Federal Reserve to cut interest rates?



At this turning point, the non-farm payroll report on January 9th once again became a key variable influencing global interest rate expectations and risk sentiment. Especially given the Federal Reserve's increasing focus on labor supply and demand balance and wage stickiness, the marginal changes in this data are even more significant than the absolute figures themselves.

Currently, market forecasts for December's non-farm payrolls are divided: some institutions expect job growth to rebound from the previous month's weakness, reaching approximately 80,000 new jobs, with the unemployment rate remaining at 4.5%; others hold a more cautious stance, with a neutral forecast of 60,000 new jobs, also corresponding to a 4.5% unemployment rate, and an expected month-on-month increase in average hourly earnings of 0.3%. Although the two sets of forecasts are not significantly different, in the current highly sensitive policy environment, any deviation could be amplified and interpreted, potentially triggering a rapid adjustment in asset prices.

The details behind the data are more important

It's worth noting that the November non-farm payroll report was severely disrupted. Due to the longest federal government shutdown in US history, the statistical process was chaotic, and data collection was significantly noisy. Furthermore, the report was released after the final FOMC meeting in 2025, and traders at that time tended to ignore one-off disturbances, focusing more on subsequent inflation trends and policy communication. Therefore, this December data is considered the first near-normal employment report since the shutdown, and the market will be exceptionally critical in its analysis of its quality and structure.

People are no longer just looking at "how many more people have started working," but are delving deeper to ask: Which industries are these jobs coming from? Is it a recovery in the service sector, or a temporary resurgence in manufacturing? Has the labor force participation rate increased accordingly? If the unemployment rate remains stable at 4.5%, but the number of employed people only increases slightly, what does that indicate? It likely means that companies' willingness to hire has weakened, and the labor market is quietly cooling down. Conversely, if the participation rate rises but fails to lead to job expansion, it suggests that there are more job seekers but not enough positions, and potential unemployment pressure is accumulating.

Wage data is also a key focus. The 0.3% month-on-month increase in average hourly earnings indicates that wage growth has not yet slowed significantly. Although overall inflation has eased somewhat, as long as wages remain resilient, service prices are unlikely to decline rapidly—this is precisely the "sticky inflation" aspect that the Federal Reserve is most concerned about. In other words, even if other prices are falling, as long as labor costs are still rising, the central bank has no reason to easily loosen the brakes. This also explains why the current interest rate market generally prices rates as high as 86% for a no-go at the January FOMC meeting, while the first 25 basis point rate cut is expected around June.

How does data influence the Fed's path? Three scenarios emerge.

The timing further amplifies the report's impact. With the next FOMC meeting scheduled for January 28th, the market is in a delicate balance: anticipating the easing benefits of an interest rate cut, yet fearing systemic risks from a weak economy. At this juncture, the non-farm payroll data acts as a key, potentially unlocking different policy doors.

If the final data shows that new jobs have increased by nearly 80,000 or even more, while wages remain at +0.3% or higher month-on-month, then the logic that "economic growth remains resilient and there is no need to rush to cut interest rates" will be further solidified. In this scenario, short-term Treasury yields are likely to rise, the US dollar index will be supported and strengthen, while risk assets that rely on low financing costs will face valuation discounting pressure, and some sectors may experience a correction.

Conversely, if new job creation is significantly lower than 60,000, accompanied by slower wage growth or an unexpected rise in the unemployment rate, the market may re-bet on the possibility of an earlier interest rate cut. Short-term interest rates are expected to decline rapidly, US Treasury prices will rebound, the dollar will come under pressure and fall, and global risk appetite may see a phase of recovery. However, there is also a trap here: if the market simultaneously prices in both "weakening growth" and "dovish policy," volatility may intensify—lower interest rates are beneficial to valuations, but concerns about future corporate earnings will rise, creating contradictory signals.

Another, more unsettling scenario is weak employment coupled with high wages. This would constitute a classic "precursor to stagflation" combination—declining economic momentum but persistent inflationary pressures. In this uncomfortable state, the Federal Reserve faces a dilemma: it dares not drastically cut interest rates to stimulate the economy, yet it cannot continue tightening to suppress demand. Markets have extremely low tolerance for such scenarios, often triggering a violent triple whammy of stock, bond, and currency market volatility.

More than just non-farm payrolls: Two major events simultaneously stir market nerves

In fact, the market uncertainties that day were not limited to the jobs report. The University of Michigan Consumer Sentiment Index, released later, will also provide another dimension of reference for the economic outlook. Consumer confidence directly affects expectations of consumer spending, and consumption is the biggest pillar of US economic growth. If confidence rebounds, coupled with strong non-farm payroll data, the market will be more convinced that a "soft landing" is being achieved; however, if confidence declines, coupled with weaker-than-expected employment data, concerns about an economic slowdown will quickly intensify, and funds may accelerate their flow into safe-haven assets.

Meanwhile, the U.S. Supreme Court may rule on the legality of the Trump administration's emergency tariffs under the International Emergency Economic Powers Act (IEEPA). While this is considered a tail risk in policy, its potential impact should not be underestimated. Betting markets indicate approximately a 30% probability that the court will uphold the existing tariff measures. If the ruling is unfavorable, will the government immediately resort to other legal means to rebuild tariff barriers? More complexly, if the court orders the refund of tariffs already paid by companies, it will directly trigger uncertainty in cash flow replenishment and fiscal arrangements, disrupting pricing models across multiple industries in the short term and transmitting this risk premium to the interest rate and exchange rate system.

In summary, the market on this day was not driven by a single factor, but rather by a complex interplay of multiple threads. While the non-farm payroll data is the main driver, it must be understood within the broader policy and institutional context.