11:24 AM EDT, 07/03/2025 (MT Newswires) -- Federal Reserve officials are unlikely to interpret the June employment report as a sign of labor market strength, but the data is too unclear to shift their stance in favor of a rate cut later this month, Jefferies' Chief US Economist Thomas Simons said in a note Thursday.

Nonfarm payrolls rose by 147,000 in June, beating expectations, but private-sector hiring was notably weaker at just 74,000, the smallest monthly gain since October 2024.

Simons highlighted that the gap was driven by a 73,000 increase in government jobs, including a 63,000 jump in state and local education payrolls-an implausible figure in June that likely reflects seasonal adjustment quirks, not actual hiring.

"The data is inconsistent and fairly confusing," Simons wrote, adding that while the headline number looks strong, the underlying details point to softness and uncertainty. The unemployment rate fell, but largely because the labor force shrank, not due to stronger job creation.

Jefferies had previously said that a soft jobs report might open the door for a July rate cut. While some parts of the report support that view, the overall picture is too noisy for Fed officials to change course right now. Simons also noted that July inflation data is likely to show a slight rebound, limiting the case for near-term easing.

"The Fed's approach to policy in this cycle has been reactive, rather than proactive, building on the lessons of history from past policy mistakes," according to the note.

Wage growth remains steady, with average hourly earnings rising 0.2% month over month and 3.7% year over year, consistent with recent trends. That pace, along with still-elevated inflation, reinforces the Fed's cautious tone.

Jefferies continues to expect the first interest rate cut in September, as mounting uncertainty and delayed investment decisions create conditions that could justify easing later in the year.