March Non-Farm Payrolls Surged Well Beyond Expectations, Federal Reserve Rate Cut Expectations for the Year Nearly Zero

What will happen to global asset allocation if the market’s expectation of interest rate cuts drops to zero?

【Global Network Financial Comprehensive Report】In March, the increase in U.S. non-farm employment hit its largest since the end of 2024, and the unemployment rate unexpectedly declined, prompting the market to reassess the Federal Reserve’s monetary policy path. U.S. bonds fell, yields rose, and traders almost completely erased their bets on rate cuts by the Fed for the remainder of this year.

Data released by the U.S. Department of Labor on April 3 showed that non-farm employment increased by 178k in March, significantly exceeding market expectations and reversing the revised decline of 133k in February. The unemployment rate fell to 4.3%, down 0.1 percentage points month-on-month.

After the data was released, the interest rate swap market showed that expectations for rate cuts this year dropped from about 4 basis points before the report to nearly zero, and bets on rate cuts next year also narrowed. According to Reuters, U.S. interest rate futures have essentially eliminated expectations for rate cuts this year, whereas before the Middle East conflict erupted, the market was pricing in 55 basis points of easing.

U.S. Treasury yields rose across the board. The benchmark 10-year U.S. Treasury yield increased by about 4 basis points to 4.35%. The more rate-sensitive 2-year yield climbed 5.2 basis points to 3.85%.

Nick Timiraos, a reporter from The Wall Street Journal known as the “New Federal Reserve Correspondent,” pointed out that this data temporarily removes the difficult policy dilemma of “supporting employment or controlling inflation” from the table. Steve Sosnick, Chief Strategist at Interactive Brokers, said, “If you’re still hoping for rate cuts, this report won’t give you any reason to be more hopeful.”

Several analysts warned that the data is lagging, and the impact of the Middle East conflict has not yet been fully incorporated into the statistics. Thomas Simons, Chief U.S. Economist at Jefferies, wrote in a report: “These data are essentially backward-looking and may not yet reflect recent increases in energy prices or risks related to the Middle East conflict.” (Chen Shiyi)