U.S. Jobs Growth Beats Expectations in January, Reinforcing Fed’s Cautious Policy Outlook

The U.S. economy added significantly more jobs than expected in January, offering fresh evidence that the labor market is stabilizing after a prolonged period of weakness—an outcome likely to influence Federal Reserve interest rate decisions later this year.

Nonfarm payrolls increased by 130,000 last month, well above economists’ forecasts of 66,000 and sharply higher than December’s downwardly revised gain of 48,000. The stronger hiring data was accompanied by a modest improvement in labor market conditions, with the unemployment rate edging down to 4.3%, compared with expectations that it would hold steady at 4.4%.

The report, released on Wednesday after being delayed by a temporary federal government shutdown, follows the Federal Reserve’s decision in January to keep borrowing costs unchanged. At that meeting, policymakers cited signs that the labor market was beginning to steady after a notably weak 2025, during which job creation averaged just 49,000 per month—the slowest pace in more than two decades outside of recessionary periods.

However, the data also highlighted underlying fragilities. As part of its annual benchmark revision, the Bureau of Labor Statistics revealed that the U.S. economy created 898,000 fewer jobs than previously estimated in the 12 months through March 2025. An earlier preliminary estimate had put the downward revision at 911,000, one of the largest initial adjustments on record.

The BLS also updated its closely watched “birth-death” model, which estimates net job creation from business openings and closures. The model has faced criticism in recent years for potentially overstating employment gains. The agency said the revised methodology now incorporates more current sample data on a monthly basis, aiming to improve accuracy.

In response to the stronger January jobs report, market expectations for Federal Reserve rate cuts shifted. Traders are now fully pricing in a 25-basis-point rate reduction in July, pushing back earlier expectations for a cut as soon as June. After a series of rate cuts last year, the Fed’s benchmark rate currently stands in a range of 3.5% to 3.75%.