Weak jobs report likely to keep Fed on hold in wake of oil price shock
A weak jobs report for February quashed the notion that the labor market is stabilizing, but it likely won’t push the Federal Reserve to cut interest rates this month, given the oil price shock from the Iran war poses a risk of higher inflation.
“This jobs report has got my attention,” San Francisco Fed president Mary Daly told CNBC. “The labor markets may be a little weaker than we have seen so far.”
Daly added that, at this point, the Fed is facing “two-sided risks.”
“The oil price shock, depending on how long it lasts, is a real thing,” she said.
The Bureau of Labor Statistics reported Friday that the economy unexpectedly lost 92,000 jobs last month and the unemployment rate ticked up to 4.4% from 4.3% in January.
Healthcare and winter storms were key factors in the report. The lion’s share of job gains in January and over the past year came from the healthcare sector, and a strike among Kaiser Permanente healthcare workers contributed to 30,000 jobs lost that are likely to bounce back in March. Winter storms also hit the numbers.
Still, employment figures for December and January were revised lower by a combined 69,000 from previously reported levels. And jobs added in other sectors weren’t enough to offset the hit to healthcare.
Snow covers the front of the Federal Reserve in Washington, D.C., on Jan. 27, 2011. (SAUL LOEB/AFP via Getty Images) ·SAUL LOEB via Getty Images
“There are a handful of things that may have distorted February’s data,” said Elyse Ausenbaugh, head of investment strategy at JPMorgan Wealth Management. “Still, the pace of job gains over the last few months is still dramatically slower than it was in 2024 and much of 2025 — this is going to make it harder for the Fed to sell the labor market stabilization narrative that’s been used to justify patience on further rate cuts.”
Daly noted that the healthcare worker strike and the storms make it harder to interpret the report. She said she’s looking at January and February’s reports together, averaging the blowout January jobs report and the near-mirror image of that in February’s report. Taken together, they show almost zero jobs created.
That puts job gains below the break-even rate of 30,000. The break-even rate — the level of job additions needed to keep the unemployment rate steady — has fallen from 100,000 since birthrates are low and the Trump administration began restricting immigration in the US, restraining population growth.
Cleveland Fed president Beth Hammack said Friday that the Fed needs to balance a softening job market against what she sees as “broad-based inflationary pressures.” She said, given this combination and the three rate cuts last fall, she believes policy remains in a “good position.”
Under her base case, she thinks the Fed could hold rates steady for “quite some time” to see evidence that inflation is coming down and the job market stabilizes further. But she added that she also sees two-sided risks to its interest rate policy.
Similarly, Boston Fed president Susan Collins said Friday that while the rate of hiring has been below breakeven, the sharp decline in immigration means a slower pace of job creation is needed. Furthermore, she said, the unemployment rate remains low by historical standards and has been relatively stable over the past few months.
Collins sees no “urgency for additional policy adjustments” right now and expects to hold rates steady for “some time.” She said she is looking for clear evidence that inflation is moving durably toward the Fed’s 2% goal — something she said might occur only in the second half of the year — to lower rates.
On the other side of the Fed policy debate, Fed governor Stephen Miran told CNBC on Friday that the weak February jobs report boosts the case for rate cuts, noting that he doesn’t think there’s an inflation problem.
“I think that the labor market can use more accommodation from monetary policy,” Miran said. And I don’t see having a modestly restrictive stance of monetary policy as opposed to a neutral stance as being appropriate. I think being close to neutral is appropriate.”
The neutral level for the Fed’s benchmark policy rate is designed to neither spur nor slow economic growth. Miran sees the neutral rate as a full percentage point below the current fed funds rate of 3.5%-3.75%.
Federal Reserve Governor Stephen Miran speaks during an interview with CNBC on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., Nov. 10, 2025. REUTERS/Brendan McDermid ·REUTERS / Reuters
Kansas City Fed president Jeff Schmid called February’s job report a reflection of structural changes in the job market. Schmid maintained that the US labor market is in the midst of a transformation in which older Americans are retiring and companies are pausing hiring to see where technology — artificial intelligence — can fill the gaps.
“[Employers] are taking a pause before we hire the next person to say, what is the skill set we need and what can technology do to bridge that skill set?” Schmid said as he pointed to what he called his “tariff socks,” which have world flags on them.
“We’re in the real-time structural change in the labor force, and I think the demographics are changing.”
Ahead of Friday’s report, Fed governor Chris Waller noted that if February’s jobs report came in strong, he would switch his position to prefer holding interest rates steady under the notion of a firming job market. But given the weaker reading, he’s likely to stick with his bias to cut rates.
At the same time, the war in Iran is impacting the outlook for inflation in the near term and raising uncertainty about the economic outlook. Officials are looking at how long the war could last and whether it will have a persistent effect on overall inflation.
“Today’s numbers may have put the Fed between a rock and a hard place,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “Significant weakening in the labor market would support a rate cut, but given the risk that higher-for-longer oil prices could trigger another inflation surge, the Fed may feel compelled [to] remain on the sidelines.”
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.
