Labor Market Remains Resilient in June

Yields rise following strong labor print. The policy-sensitive front end of the yield curve soared today following June hiring and unemployment figures that were much stronger than expected. The data could allow the Fed to continue their patient approach toward rate cuts, whereas a weaker report may have forced their hand in September (or even July).  Fed Funds futures-implied odds for a 25 bp July rate cut plummeted to 5% from 25% yesterday, and a September move is now only 75% likely. The 2-year yield climbed 10 bps to 3.88%, a ~13 bp rise on the holiday-shortened week. Meanwhile, the 10-year yield rose 7 bps to 4.35%.

Government hiring offsets private sector slowdown. Today’s June labor data surprised markets, showing labor conditions were stronger than expected. Nonfarm Payrolls grew by 147,000 during the month, vs. expectations of a 106,000 advance, and slightly higher than May’s 144,000 print. The unemployment rate also declined from 4.2% in May to 4.1%, vs. expectations of an increase to 4.3%. The payrolls boost was largely driven by higher government employment, specifically within public education, which offset a broader slowdown in private sector hiring. While the market reaction to today’s data was largely positive, the divide between public and private sector hiring was stark, with private payrolls growth falling from 137,000 in May to 74,000 in June, below estimates of a more measured decline to 100,000.

Treasury Secretary Bessent reiterates Fed criticism. The Fed’s hawkish 2025 policy has generated significant pushback from President Trump and Secretary Bessent, especially with tariff-driven inflationary pressures remaining relatively muted to date. Bessent said today in an interview on Fox Business that “The committee seems to be a little off here in their judgment,” and he cited current “very high real rates” as a reason to ease policy earlier. However, he caveated, “But again, it’s their decision, and I just think if they don’t cut, then perhaps the cut in September will be bigger.” Meanwhile, Bessent stated that “There are a lot of good, strong candidates” to replace Powell at the end of his Fed chair term in May 2026, and many have speculated that Powell’s replacement will have a dovish lean.