Since the more hawkish than expected October’s FOMC decision, the market got a bit less certain on multiple Fed rate cuts as the division among members became clearer. The Fed eventually delivered one last cut in December but signalled that additional adjustments will be data-dependent.
In January, we started to get better and better US data, especially on the labour market side. One of the most important ones have been the US Jobless Claims reports. The data has been pointing to a “low hire, low fire” labour market in 2025 as initial claims remained stable, while continuing claims reached new cycle highs. The uncertainty over tariffs weighed on business activity and led to a freeze in hiring.
More recently, the jobless claims data showed a notable improvement which also triggered a slightly hawkish repricing in Fed rate cuts expectations. In fact, initial claims fell to cycle lows and the uptrend in continuing claims started to reverse in what could be a sign of re-acceleration as uncertainty fades in 2026.
This makes the next US NFP report in February a pivotal moment for interest rate expectations.
Traders are still pricing 46 bps of easing by year-end, which roughly equates to two rate cuts in 2026. These rate cuts could be priced out very quickly if we get strong data. In fact, the doves at the Fed (excluding Fed’s Miran) have been calling for rate cuts because of the labour market weakness in 2025. They feared a quick deterioration and wanted some insurance cuts.
If the labour market re-accelerates this year, the doves will switch their stance to neutral. If this is then followed by a re-acceleration in inflation, then we could even see them turning hawkish, which would have even bigger consequences for the markets.
If we do get a strong US NFP report next week, I would expect the hawkish repricing to trigger a rally in the US Dollar, and a selloff in gold and silver.
This article was written by Giuseppe Dellamotta at investinglive.com.