Institutional analysis of May non-farm payrolls: Strong job market, risks are more likely to favor interest rate hikes.
2026-06-05 21:17:51
On Friday (June 5), data released by the U.S. Bureau of Labor Statistics showed that nonfarm payrolls increased by 172,000 in May; the April increase was revised sharply upward to 179,000 from the previously reported 115,000. May's job growth continued the strong momentum of the previous two months. The unemployment rate remained at 4.3% for the third consecutive month. The improved job growth mainly reflects the still low level of layoffs. There are currently no signs that the surge in oil prices and the prices of goods transported through the Strait of Hormuz due to the Middle East conflict has had a substantial impact on the U.S. job market. Despite the strong job growth, the labor market remains in what economists call a "low hiring, low layoffs" equilibrium.
Non-farm payrolls for March were revised upwards from 10,000 to 214,000; April's figure was revised upwards from 115,000 to 179,000. The revised figures show a combined increase of 93,000 jobs in March and April compared to the initial revisions. The unemployment rate remained at 4.3%, having stayed within a narrow range of 4.3% to 4.5% since July 2025. The total number of unemployed is 7.3 million. Job growth was primarily concentrated in the leisure and hospitality, local government, and healthcare sectors, while employment in financial activities declined.
The May non-farm payroll data far exceeded market expectations, causing the US interest rate futures market to significantly increase its bets on a Federal Reserve rate hike at its December meeting. The interest rate futures market currently projects a 65% probability of a rate hike in December, up from 48% before the jobs report was released. For the June meeting, the market still widely expects the Fed to keep interest rates unchanged in the 3.50% to 3.75% range. The stronger-than-expected jobs data indicates the continued resilience of the US labor market, further weakening market expectations for a near-term rate cut and strengthening investors' assessment that the Fed may resume rate hikes in the future to address inflationary pressures.
According to CME's FedWatch Tool: the probability of the Federal Reserve keeping interest rates unchanged by June is 96.6% (96.4% before the non-farm payrolls report), and the probability of a cumulative 25 basis point rate cut is 3.4%. The probability of the Fed keeping interest rates unchanged by July is 90.6%, the probability of a cumulative 25 basis point rate hike is 6.2%, and the probability of a cumulative 25 basis point rate cut is 3.2%. Traders are pricing in a Fed rate hike in January, previously the market expected a March hike.
The U.S. economy achieved strong job growth again in May, confirming that the labor market is gaining momentum after a slump last year and potentially giving the Federal Reserve more room to keep interest rates unchanged amid rising inflation triggered by the war with Iran.
Spot gold continued to fall after the non-farm payrolls data was released, dropping another $40 in the short term to $4409.73 per ounce. The US dollar index (DXY) rose 14 points to 99.56, a new high since April.
Institutional Views
Institutional analyst Jersey commented on the US non-farm payrolls: It's difficult to describe the job market as weak. For the interest rate market, the risk leans more towards rate hikes, while the likelihood of rate cuts decreases. Kevin Warsh would find it difficult to persuade other members of the Federal Reserve's Monetary Policy Committee to lower interest rates. We don't believe a rate hike is imminent, but if we see several more job increases like this, several rate hikes will become our baseline scenario.
Institutional analyst Anstey commented on the US non-farm payrolls: Economists estimate that the break-even point for job growth is only 50,000 or lower. This figure is considered to be in line with the level needed to absorb new jobs. Therefore, the job growth of 172,000 in May not only indicates that the market can absorb new workers, but also means that a large number of unemployed people have found new jobs.
Non-farm payrolls for March were revised upwards from 10,000 to 214,000; April's figure was revised upwards from 115,000 to 179,000. The revised figures show a combined increase of 93,000 jobs in March and April compared to the initial revisions. The unemployment rate remained at 4.3%, having stayed within a narrow range of 4.3% to 4.5% since July 2025. The total number of unemployed is 7.3 million. Job growth was primarily concentrated in the leisure and hospitality, local government, and healthcare sectors, while employment in financial activities declined.
The May non-farm payroll data far exceeded market expectations, causing the US interest rate futures market to significantly increase its bets on a Federal Reserve rate hike at its December meeting. The interest rate futures market currently projects a 65% probability of a rate hike in December, up from 48% before the jobs report was released. For the June meeting, the market still widely expects the Fed to keep interest rates unchanged in the 3.50% to 3.75% range. The stronger-than-expected jobs data indicates the continued resilience of the US labor market, further weakening market expectations for a near-term rate cut and strengthening investors' assessment that the Fed may resume rate hikes in the future to address inflationary pressures.
According to CME's FedWatch Tool: the probability of the Federal Reserve keeping interest rates unchanged by June is 96.6% (96.4% before the non-farm payrolls report), and the probability of a cumulative 25 basis point rate cut is 3.4%. The probability of the Fed keeping interest rates unchanged by July is 90.6%, the probability of a cumulative 25 basis point rate hike is 6.2%, and the probability of a cumulative 25 basis point rate cut is 3.2%. Traders are pricing in a Fed rate hike in January, previously the market expected a March hike.
The U.S. economy achieved strong job growth again in May, confirming that the labor market is gaining momentum after a slump last year and potentially giving the Federal Reserve more room to keep interest rates unchanged amid rising inflation triggered by the war with Iran.
Spot gold continued to fall after the non-farm payrolls data was released, dropping another $40 in the short term to $4409.73 per ounce. The US dollar index (DXY) rose 14 points to 99.56, a new high since April.
Institutional Views
Institutional analyst Jersey commented on the US non-farm payrolls: It's difficult to describe the job market as weak. For the interest rate market, the risk leans more towards rate hikes, while the likelihood of rate cuts decreases. Kevin Warsh would find it difficult to persuade other members of the Federal Reserve's Monetary Policy Committee to lower interest rates. We don't believe a rate hike is imminent, but if we see several more job increases like this, several rate hikes will become our baseline scenario.
Institutional analyst Anstey commented on the US non-farm payrolls: Economists estimate that the break-even point for job growth is only 50,000 or lower. This figure is considered to be in line with the level needed to absorb new jobs. Therefore, the job growth of 172,000 in May not only indicates that the market can absorb new workers, but also means that a large number of unemployed people have found new jobs.
- 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.
