Key Takeaways:
- May nonfarm payrolls expected at 85,000 with unemployment steady at 4.3%
- JPMorgan's Kelsey Berro says the data is too ambiguous to guide Fed Chair Kevin Warsh
- Inflation near 4% from supply shocks, not wages, complicates the rate path
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May payrolls of 85,000 won't help Fed decide, JPMorgan says
May's payrolls report is expected to show 85,000 new jobs, but the data may be too ambiguous to guide the Federal Reserve's next move.
The US labor market is strengthening after a prolonged slump, yet Friday's payrolls report may prove too ambiguous to give new Fed Chair Kevin Warsh a clear direction on rates, according to JPMorgan Asset Management.
"The jobs report will not help the Fed," Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Real Yield. "The data is neither hot enough to force a hike nor cold enough to justify a cut."
Economists forecast nonfarm payrolls rose by 85,000 in May, with the unemployment rate holding at 4.3%. That would extend a recovery from last year's average of just under 10,000 monthly jobs to 76,000 per month in the first four months of 2026 — well above the near-zero breakeven rate the Atlanta Fed estimates is needed to keep unemployment from rising. ADP's private payrolls rose 122,000 in May, the strongest since January 2025, while JOLTS data showed job openings at a two-year high.
The ambiguity leaves Warsh in a bind. Inflation is approaching 4%, driven by energy shocks and tariffs rather than wages — average annual earnings growth has trended lower for three years, pushing real earnings negative. With OIS markets pricing an uncertain path, the May report could determine whether the Fed's next move is a cut, a hold, or even a hike.
The labor market's gradual improvement masks structural shifts. Monthly job gains averaged 76,000 through April, a notable improvement from 2025's average of just under 10,000, according to Bureau of Labor Statistics data. The breakeven rate — the pace of hiring needed to prevent the unemployment rate from rising — has fallen so sharply that a Federal Reserve paper published in April estimated it is close to zero, the lowest in more than 65 years. That means even modest hiring could keep the labor market stable.
Yet risks remain. Challenger, Gray & Christmas reported 97,000 job cuts announced in May, the most for that month since 2020. The global energy crisis, tariff uncertainty, and the unknown impact of artificial intelligence on employment all threaten to tip the "low hire, low fire" dynamic into something worse. "Cyclical employment bottomed out around the summer or fall of last year," said Tim Duy, chief US economist at SGH Macro Advisors. "The labor market has likely turned durably stronger."
Inflation Complicates the Calculus
While employment is firming, inflation pressures are intensifying — but from supply-side shocks, not wage growth. Consumer prices are approaching 4%, driven by energy costs and tariffs, while average hourly earnings growth has decelerated for three consecutive years. Real earnings are now negative, a dynamic that historically has constrained consumer spending and, by extension, the Fed's urgency to tighten.
The last time the labor market showed similar crosscurrents was in late 2023, when the Fed held rates steady for months before eventually cutting in September 2024. That precedent suggests Warsh may favor patience, waiting for clearer signals from both employment and inflation before committing to a direction.
This article is for informational purposes only and does not constitute investment advice.
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