Strong May Payrolls Fuel Fed Rate Hike Bets, Pressuring Rookie Chair Kevin Warsh
Strong U.S. hiring data has rattled markets and intensified pressure on rookie Federal Reserve Chair Kevin Warsh, with traders now betting the central bank could raise rates by the end of the year. Friday’s jobs report showed the labor market remains resilient, reinforcing concerns that inflation may stay sticky and giving hawkish Fed officials more room to argue that policy may need to tighten further.
According to Bloomberg Economics, U.S. employers added 172,000 jobs in May, topping economists’ forecasts, while the unemployment rate held steady at 4.3%. Bloomberg Markets reported that the data triggered a sharp shift in expectations across asset classes, with bond traders fully pricing in a Fed hike by year-end and the dollar posting its best day in more than two months.
The move in markets was swift. Treasury yields climbed as traders sold bonds, gold erased its 2026 gains, and emerging-market currencies fell on the view that stronger-than-expected U.S. growth reduces the case for rate cuts. Bloomberg Markets also reported that one of the few remaining dissenting views comes from Citigroup economists, who still expect the Fed to cut rates three times this year even after the strong payrolls number.
The jobs report has added to an already delicate moment for Warsh, who is facing an early test of his leadership. As Bloomberg Economics reported, the data strengthens arguments from some Fed officials that rates may need to go up later this year, even though the central bank has been focused on judging whether inflation is easing enough to allow eventual cuts. Cleveland Fed President Beth Hammack said the labor market appears to be in balance and that it may soon be appropriate to raise rates, underscoring how the report could embolden hawkish policymakers.
Other Fed watchers were more cautious about reading too much into one report. JPMorgan Asset Management’s Kelsey Berro told Bloomberg that the jobs data will not help the Fed because officials remain focused on the inflation outlook. Gene Sperling, speaking on Bloomberg Television, said the headline figures point to a low recession risk, though he noted that some of the gains in hospitality may reflect seasonal factors.
For markets, the immediate message was clear: the path of rates looks less likely to be lower and more open to another increase. As Bloomberg reported, the shift in pricing reflects growing confidence that the labor market is no longer cooling enough to force the Fed’s hand toward cuts, even as debate continues over whether stronger employment is a sign of healthy demand or a potential new inflation risk.