A stronger-than-expected labor report just crushed any hopes that the Federal Reserve would lower rates this month—despite speculation from Wall Street and direct demands from President Donald Trump.

In June, the U.S. economy added 147,000 jobs, topping forecasts, while the unemployment rate ticked down to 4.1%, according to the latest Bureau of Labor Statistics data released Friday. Those numbers make it hard for the Fed to justify an imminent rate cut, as inflation remains above the 2% target.

That's a problem for Trump, who's been repeatedly calling out Fed Chair Jerome Powell for delivering large rate cuts.

But the Fed appears unfazed—at least for now.

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Economists Just Don’t See Near-Term Fed Rate Cuts

Bank of America economist Aditya Bhave said the data was "solid," adding that, "average job growth is above breakeven, and the u-rate is down. This should let the Fed stay in wait-and-see mode."

He did flag a few concerns—like weaker private-sector job growth at just 74,000 and flat aggregate private income—but not enough to change the outlook.

Bhave reiterated his base case that "the Fed won't cut this year," especially if the economy holds up and inflation trends higher, possibly to 3% in the coming months.

That puts markets in a bind.

Over the past few weeks, traders had priced in what some economists called a "Goldilocks" path—a scenario where inflation stays tame enough to allow cuts even with decent job growth. But Bhave pushed back on that idea, saying, "We always thought this scenario was the least likely."

If he’s right, either stocks or short-term bond yields, or both, are probably mispriced.

"Given the strong jobs numbers along with the extension of tax cuts and potentially higher tariff levels…the Fed is much less likely to cut rates this month than many were talking about earlier this week," said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Zaccarelli believes a cut could still happen—just not right away. "The Fed is likely to wait until later in this quarter or even until the fourth quarter."

Other economists echoed that timeline. Bill Adams, chief economist at Comerica Bank, said, "The Fed has a maximum employment mandate, not a job growth or GDP growth mandate. If the unemployment rate is holding steady…the job market won't give the Fed a reason to cut."

Adams sees a rate cut as possible in October or December, "but more likely to be driven by cooler-than-expected inflation than by an increase in unemployment."

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said the Fed still has reason to wait. "While there were some elements of softness beneath the better-than-expected headlines, the June employment report was strong enough to allow the Federal Reserve to keep policy on hold," she said.

She doesn't expect action until the inflationary impact of tariffs fades. "We expect the inflationary impact of tariffs to have peaked by the fourth quarter, allowing the Fed to start cutting rates in December."

Investors Still Betting On Cuts

Despite the Fed's cautious tone, markets are still leaning toward at least two rate cuts this year. Fed futures currently imply 55 basis points of cuts by December 2025, according to CME Group Fed Watch.

CFTC-regulated betting exchange Kalshi shows there's a 37% chance of two 25-basis-point cuts by December. As of Friday, Kalshi traders were pricing the following probabilities for Fed cuts by December 2025:

0 cuts (0 bps): 15%

1 cut (25 bps): 22%

2 cuts (50 bps): 36%

3 cuts (75 bps): 17%

4 cuts (100 bps): 5%

That means the market sees a 58% chance of at least two cuts by year-end, and a 22% probability of three or more, despite the strength of the labor market and the potential second-half inflationary risks from tariffs.

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