Fed Rate Cut Odds Jump Following Huge U.S. Jobs Report Miss

The Bureau of Labor Statistics reported that nonfarm payrolls fell by 92,000 jobs in February. The market had expected a gain of about 58,000 jobs, while unemployment rose to 4.4%, above forecasts of 4.3%. The miss immediately pushed Fed rate cut expectations higher as investors reacted to clear weakness in the labor market.

Fed Rate Cut Odds Rise After Jobs Data Shock

Markets quickly adjusted expectations for a Fed rate cut after the weak jobs report. According to CME FedWatch data, the probability of a March rate cut increased from 2% to 4.7%. Prediction markets also shifted their outlook for policy easing. 

Source: CME FedWatch

According to Kalshi, traders now see a 26% probability of exactly one Fed rate cut in 2026. Meanwhile, the probability of exactly two cuts stands at 22%. Markets still assign a 17% probability that the Federal Reserve makes no cuts this year.

Source: Kalshi

The debate around policy direction also includes geopolitical risks. As CoinGape reported, BitMEX co-founder Arthur Hayes recently argued that expanded U.S. involvement in Iran could increase pressure for looser monetary policy. Hayes said prolonged Middle East conflicts have historically pushed the Federal Reserve toward accommodative policies.

However, geopolitical tensions complicate the outlook. Rising oil prices linked to the escalating U.S.–Iran conflict have lifted inflation expectations across markets. As a result, the Federal Reserve must balance a weakening labor market with inflation pressures when evaluating the path of future Fed rate cut decisions.

Weak Jobs Data Drives Policy Debate

The February nonfarm payrolls report added to growing concerns about labor market stability. The unemployment rate also rose to 4.4%, slightly above January’s 4.3%. This was only the second monthly job loss since the 2020 pandemic. Such a large miss typically raises the likelihood of policy easing leading to Fed rate cuts because weaker employment signals slower economic momentum.

December 2025 payrolls were revised from 48,000 to a loss of 17,000 jobs. January payrolls were also revised lower, falling from 130,000 to 126,000 jobs. These revisions removed roughly 69,000 previously reported jobs.

The report showed weakness across several industries. Labor force participation also declined, while average weekly hours remained flat. However, wage growth stayed relatively strong despite broader employment declines. The mixed signals complicated how markets interpret the path of future Fed rate cut decisions.

Fed Official on Inflation and Cuts  

San Francisco Federal Reserve President Mary Daly said the February jobs report adds complexity to future policy decisions. In a CNBC interview, Daly said the weakening labor market deserves attention, though she cautioned against overreacting to a single month of data. She noted that policymakers must weigh softer employment conditions against inflation that remains above the Federal Reserve’s 2% target.

Daly also referenced the three Fed rate cuts delivered in late 2025, which totaled 75 basis points. She said those reductions aimed to place a floor under the labor market as economic conditions changed. However, she added that the current environment differs from earlier easing cycles because inflation has stayed above target.