U.S. May Nonfarm Payrolls Beat Expectations, Traders Fully Price in Fed Rate Hike This Year
Miles Bennett
US May non-farm payrolls far exceeded forecasts, and traders have now fully priced in a 25 bp Fed rate hike by December 2026 — a full quarter earlier than the prior consensus, triggering sharp moves across bonds, gold, and the dollar.
What made the jobs data so strong?
May hiring came in well above expectations, and the Labor Department revised March and April payrolls up by a combined 93,000.
This means → it is not a one-month surprise; the jobs picture across all three months was stronger than previously believed.
The federal funds rate has sat at 3.50%–3.75% since December 2025. Before this report, markets expected the first hike no sooner than March 2027.
Why did rate-hike expectations shift so fast?
Rate futures repriced within minutes: the probability of a December hike jumped from 48% to 63%, and an October hike is now priced at roughly 60%.
In plain terms = traders moved the "when does the Fed act?" timeline forward by an entire quarter.
Markets still expect the Fed to hold rates steady at the June meeting — stand pat near-term, tighten in the second half is the prevailing trade.
How did bonds, gold, and the dollar react?
The 2-year Treasury yield rose 10 bp on the day, hitting a 2026 high; the 10-year yield climbed more than 4 bp to 4.520%.
This means → the short end moved far more than the long end — markets concentrated the hike repricing in the most rate-sensitive maturity.
Spot gold broke below $4,420/oz, settling at $4,419.84, down over 1.3% intraday; the dollar index hit a high since April 8, up 0.12%.
S&P 500 and Nasdaq 100 futures extended losses — rising hike expectations weighed on risk assets.
Content is for reference only, not financial advice.