A cooler reading on payrolls in June, which broke a three-month hot streak, is still likely to keep Federal Reserve officials’ full attention on inflation and extend the interest rate pause, while preserving the hawks’ case for potential rate hikes later this year.
The US economy added 57,000 jobs in June, fewer than expectations for 113,000 and down sharply from May. The unemployment rate inched down to 4.2%, compared with 4.3% the previous month and expectations for it to hold steady.
The strong payroll reports for April and May were revised lower as well — by 31,000 to 148,000 in April and by 43,000 to 129,000 for May.
Average monthly job growth over the past three months now stands at roughly 111,000, markedly stronger than the scenario some Fed officials posited at the start of the year that zero job growth could still mean a balanced job market.
June 2026 nonfarm payrolls · Yahoo Finance
Jeffrey Roach, chief economist for LPL Financial, noted that he’s concerned that an increasing number of people are dropping out of the job market altogether. The labor force participation rate slid 0.3 percentage points to 61.5%.
“For now, the labor market is holding, giving the Fed opportunity to stay focused on price stability,” said Roach.
Krishna Guha, head of economics and central banking strategy for Evercore ISI, said he thinks June’s employment report will be viewed by the Fed as “back to normal,” rather than a weak report after a string of strong monthly job growth.
“The Warsh Fed is an inflation-first Fed and its new Chair rejects a mechanical link between labor market strength and inflation,” Guha said in a note. “So we think the labor report will not have material implications either way for the rate outlook, which will turn instead on developments that speak more directly to the inflation outlook.”
Markets are pricing in an 80% chance the Fed holds rates steady later this month and a 46% chance they hike in September or October, down form 50% before the report, according to the CME Fed watch tool.
Speaking earlier Thursday in Spain ahead of the jobs report’s release, San Francisco Fed president Mary Daly said the job market is stable and that one report isn’t going to break this view.
Fed Chairman Kevin Warsh on Wednesday said the job market remains “steady.” He downplayed concerns that artificial intelligence will lead to job losses, saying that technological shifts will ultimately result in greater job creation and prosperity. He rejected the idea that automated tech reduces the total amount of work available, calling that perspective the “lump of labor fallacy.”
“Who knew when the internet was born that the internet was going to create a million and a half jobs as Uber drivers? We’re only in the first or second inning of this revolution,” he said at a central banking forum in Portugal, noting he’s not an AI doomer or pessimist.
While Warsh voiced optimism about employment, he remained firm on managing the other half of the Fed’s dual mandate: price stability. He reiterated that inflation remains too high and vowed to keep monetary policy restrictive until inflation returns to the central bank’s 2% target.
Warsh said plainly that prices are too high and said anyone who thought the Fed was “going to be comfortable with an inflation objective above 2%, well, I guess they’d be disappointed.
“We’re going to deliver price stability in the US.”
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index excluding volatile energy and food prices, rose to 3.4% in May, the highest level since October 2023.
Fed officials see inflation rising 3.6% this year, compared with 2.7% previously, on a headline basis. On a “core” basis, officials see inflation at 3.3%, compared with 2.7% previously.
The Labor Department released the monthly jobs report a day early. Markets and federal offices are closed Friday in observance of the July 4 holiday.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.