Rate cuts further dimmed with positive employment report

• Key takeaway: The Bureau of Labor Statistics reported Friday that the U.S. added 172,000 jobs in May, while unemployment held steady at 4.3%.
• Supporting data: Leisure and hospitality added 70,000 jobs, followed by local government with 52,000 and health care with 47,000.
• What's at stake: The stronger-than-expected employment figures will likely make it more difficult for Federal Reserve policymakers to make the case for additional interest rate cuts to support the labor market, particularly as inflation edges higher.

WASHINGTON — The Bureau of Labor Statistics' upbeat jobs report Friday will make it harder for the Federal Reserve to justify cutting interest rates, reporting that the economy added 172,000 jobs in May and unemployment stayed steady at 4.3%.

The report also included notable upward revisions to March and April payroll figures. March job growth was revised to 214,000 from 185,000, while April's total was raised to 179,000 from 115,000.

The stronger-than-expected employment figures could give Federal Reserve policymakers greater reason to keep interest rates unchanged in the near term, particularly as inflation risks remain elevated. After cutting interest rates at three consecutive meetings to close out 2025, the Federal Reserve's Federal Open Market Committee has kept its federal funds rate target range steady at 3.5% to 3.75% since January. 

Job growth in May was led by the leisure and hospitality, local government and health care sectors, while employment in financial activities declined. Leisure and hospitality added 70,000 jobs, followed by local government with 52,000 and health care with 47,000. Employment in mining, quarrying, and oil and gas extraction rose by 5,000 jobs in May and has increased by 10,000 since February.

Wage growth remained modest. Average hourly earnings increased 0.3% in May and were up 3.4% from a year earlier. Meanwhile, the number of people working part time for economic reasons fell to 4.8 million from 4.9 million in April.

The jobs report comes as inflation has shown signs of reaccelerating. The Consumer Price Index rose 0.6% in April and was up 3.8% from a year earlier, driven largely by higher energy prices. Gasoline prices increased 5.4% in April after surging 21.1% the previous month. The energy index rose 3.8% over the year, and the BLS said energy accounted for more than 40% of the monthly increase in consumer prices.

Inflation

Bessent calls inflation 'short-term blip'

June 3, 2026 3:07 PM

By Ebrima Santos Sanneh

Some central bank officials have signaled growing concern about how the Iran war could affect inflation going forward. In a May speech, Federal Reserve Gov. Lisa Cook said the central bank should be prepared to raise interest rates if price growth remains elevated, warning that inflation could become embedded in expectations if it persists. "After five years of above-target inflation, I am particularly attuned to the risk that elevated inflation will become embedded in price- and wage-setting behavior," Cook said. "As such, I am prepared to raise rates if the expected disinflation does not appear in a timely manner."

Cook joins several other members of the FOMC who have called for a more neutral policy stance. Three reserve bank governors — Cleveland's Beth Hammack, Dallas' Lori Logan and Minneapolis' Neel Kashkari — voted against the committee's policy statement last month, arguing it should not have included language suggesting a bias towards future easing.

Since then, Federal Reserve Gov. Christopher Waller also supported removing the "easing bias" from the Fed's policy statement, saying policy should remain flexible based on incoming data. With Cook aligning with that view, there are at least six inflation-wary FOMC members — half of the group's voting members — making the odds of a rate cut even less likely.