US Employment and Consumption Data Solidify Fed's Pause Expectations

Summary

Recent robust US employment and consumption data have reinforced market expectations that the Federal Reserve will hold interest rates steady in the short term, pushing back projections for rate cuts until later in 2026.AnueSec Data showed a stable labor market with a smaller-than-expected increase in initial jobless claims, while consumer spending remained resilient.AnueSec In response, US Treasury yields rose, with the 2-year yield hitting a high for the previous year.AnueSec The probability of the Fed maintaining current rates at its January meeting is now seen as high as 95%, with expectations for a first cut pushed to June or later.FX678

Impact Analysis

So the market’s dovish fantasy is officially over. This latest batch of strong jobs and spending data gives the Fed all the cover it needs to hold steady.AnueSec They were never going to rush into cuts with a resilient economy and inflation still above target, and now they don’t have to pretend.JIN10 The key signal is the 2-year yield hitting a new high—the bond market is finally waking up to the reality that cuts are a story for much later in 2026, not next quarter.AnueSec This puts the ‘higher for longer’ trade firmly back in play. Bottom line: this is bullish for the dollar and bearish for gold, which faces headwinds from both higher yields and a stronger USD.FX678 I’d also be wary of long-duration growth stocks here; the discount rate matters again. This is more of a value/cyclicals environment.