The resilience of the US labour market looks likely to keep Federal Reserve rate cuts on hold for the foreseeable future.

Although non-farm payrolls for January showed the economy added 143,000 jobs, below the median estimate of 170,000, figures for the prior two months were revised up by 100,000 taking the three-month average increase to 204,000 in the fourth quarter from 170,000 previously.

The unemployment rate ticked down to 4%, while average hourly earnings increased by 4.1% on an annual basis against the 3.8% expected by economists.

Fed chair Jerome Powell has previously argued wage growth needs to remain below 4% to be consistent with the bank’s medium-term 2% inflation target, meaning more progress is needed if interest rates are to fall further.

David Page, head of macro strategy at AXA Investment Management, agrees: ‘To our mind, these are certainly not data to encourage the Fed to cut rates over the coming months.’

The University of Michigan Consumer Confidence index was released on 7 February, and surprisingly dropped to a seven-month low missing expectations by some way.

Michigan Survey director Joanne Hsu noted the drop in sentiment occurred across all age and wealth groups, with all five index components down led by a 12% slide in buying conditions for durables, ‘in part due to a perception that it may be too late to avoid the negative impact of tariff policy’.

A worrying element of the report was the measure of short-term inflation expectations, which showed participants believe inflation will average 4.4% over the coming year up from 3.4% in the previous survey.

Hsu noted a full percentage point jump is unusual and is just the fifth time it has occurred in 14 years. Interestingly, the first reading was taken on 4 February, the day Trump suspended the 25% tariffs on Mexico and Canada. A final reading for February will be taken at the end of the month.

The reading for five-year inflation expectations also ticked up to 3.3% from 3.2%, the highest since June 2008.

Ernie Tedeschi, director of economics at Yale’s Budget Lab, believes uncertainty around tariffs risks fueling inflation even if tariffs aren’t actually implemented.

That said, the Michigan inflation survey does possess some quirks. Bloomberg columnist John Authers points out there is a wide political divide, with survey participants identifying as republican forecasting zero inflation while democrats are bracing themselves for more than 5% inflation over the coming year.

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