The market’s expectation of modest job gains in February was betrayed by unexpected job losses last month, according to newly released government estimates.
Employers trimmed 92,000 jobs according to initial tallies of February payrolls published Friday by the U.S. Bureau of Labor Statistics (BLS). The unemployment rate rose to 4.4% from a six-month low of 4.3% in January, slightly above a rate of 4.2% a year ago.
After adding a monthly average of 36,000 jobs over the previous year, health care employers shed 28,000 jobs in February, concentrated among physician office staffing and attributed in the report to “strike activity.” Economists polled by The Wall Street Journal had forecast that employers would add 50,000 jobs last month.
Now the question for business leaders is how the employment situation may stretch or shrink the rate-cut horizon. The Federal Open Market Committee (FOMC) will take its next vote on adjusting the federal funds rate from its current range of 3.5% to 3.75% on March 18.
Those Federal Reserve officials are widely expected to leave interest rates unchanged at that meeting, though the dour February labor data combined with volatile geopolitical inflation drivers have complicated the Fed’s rate calculus.
“The job market is softening and inflation is expected to increase due to a spike in oil prices resulting from the war in Iran,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association, sharing his reaction to the jobs report with Scotsman Guide. “Although this month’s job numbers were weaker than expected, we do not expect the FOMC to cut rates any time soon given the heightened inflation risk.”
Uncertain monetary policy
As of Friday morning, futures traders were pricing in the greatest likelihood that the first rate cut of 2026 won’t come until the Fed meeting in July, according to CME Group’s FedWatch tool. Heading into 2026, financial markets had broadly priced in a first rate cut in March, or conservatively, June.
However, from volatile tariff policies that have disrupted investment, hiring and inflation projections to military interventions abroad that have rattled critical supply chains, myriad federal policies implemented by President Donald Trump during the first half of his second term have increased the uncertainty with which Fed officials now operate.
Tariffs have contributed upward price pressure to consumer goods and services, delaying the return of elevated inflation readings to the Fed’s 2% target. The uncertainty by which tariffs have been implemented, revised, terminated and implemented once more, in many cases, delays their eventual impact and therefore the Fed’s timeline for a return to 2% inflation.
Compounding the labor demand confusions are tariff-related hiring declines and AI-related hiring pauses, plus a Trump administration crackdown on the foreign-born workforce that has sharply lowered labor supply, thus stabilizing the jobless rate. The Fed has a dual mandate to maintain stable prices and maximum employment.
Minneapolis Fed President Neel Kashkari explained at an investor conference hosted by Bloomberg this week that the war in Iran would have an impact on inflation and the Fed’s outlook. The duration of the war, he said, would determine the extent of the price pressures.
“Uncertainty is a drag on the economy broadly,” he said in response to an audience member’s question about whether the Supreme Court’s tariff ruling changes his perspective on pass-through tariff impacts. “I haven’t seen a lot of evidence that tariffs will go much higher from here.”
That uncertainty trickles through to housing, which economists and industry experts agree will require meaningful easing of mortgage rates below 6% this spring to unlock hesitant homebuying demand. Wholesale and consumer price inflation both accelerated to kick off 2026.
“Official jobs reports are relatively unreliable right now, but taking the pulse of workers and job seekers tells us times are tough,” said Hector Amendola, president of Panorama Mortgage Group, in an email to Scotsman Guide. “Right now, we desperately need job market improvements, along with stable prices, and more new-home inventory priced for average Americans, to bring about sustainable growth in the housing market.”
Balance of housing risks
With the unemployment rate within a range typically associated with full employment and inflation stuck around 3%, “the balance of risks remains tilted toward patience rather than urgency,” said Sam Williamson, senior economist at First American Financial Corp., in remarks emailed to Scotsman Guide.
“Despite the downside surprise, the report is unlikely to materially alter the Federal Reserve’s near‑term policy outlook,” he added. “With inflation still above target, the outlook for further easing in mortgage rates heading into the spring homebuying season appears limited,” though conditions for some homebuyers are the friendliest seen in years.
Employment in information sectors and federal government continued trending down in February, according to Friday’s BLS data, while social assistance employers added 9,000 jobs.
An unevenly distributed jobs report from January revealing 130,000 monthly gains was revised to a still impressive 126,000. December job gains were revised lower by 65,000, from a net gain of 48,000 to a net loss of 17,000. While December’s revision appears dramatic, some policymakers at the Fed typically operate as if lower-than-reported job creation is regularly happening.
Federal Reserve Chairman Jerome Powell, who will soon preside over his final FOMC meeting as chair, has frequently said that he discounts government job estimates by around 50,000. January’s labor report included a massive revision to annual 2025 totals from an initially estimated 584,000 — already one of the lowest job growth years on record — to just 181,000.
Payroll processing firm ADP reported this week that private employers added 63,000 jobs in February, concentrated among small firms and those clustered in health care, education and some corners of the construction industry.
Williamson believes broader movements in the housing market still support increased homebuyer activity this spring and summer, however, with mortgage rates much lower than a year ago, home prices cooling or declining in many markets and household income growth outpacing inflation.
“Together, these forces have improved buying power and should support a firmer spring market,” the First American economist said, “even if longer‑term Treasury yields and mortgage rates simply hold near current levels.”
