April Jobs Report Delivers a Goldilocks Scenario for the Fed — But Caution Still Rules

The April 2025 U.S. jobs report delivered a measured dose of optimism for markets and policymakers alike, painting a picture of a labor market that’s neither too hot nor too cold — just right enough to keep the Fed steady-handed, at least for now.

1. Labor Market Holding Firm: Job Gains Beat Expectations

U.S. employers added 177,000 jobs in April, comfortably outpacing consensus estimates of 130,000. This upside surprise reinforces confidence in the economy’s resilience amid higher interest rates and geopolitical uncertainties. While not as strong as the job gains seen in late 2023, the April print signals that demand for labor remains healthy — a critical input for sustaining consumer spending.

Even more encouraging was the stability in the unemployment rate, which held steady at 4.2%. This occurred alongside a slight uptick in labor force participation, which rose to 62.6% from 62.5%, suggesting that more Americans are re-entering the job market — a positive sign for labor supply and wage moderation.

2. Underemployment Improves: U-6 Rate Ticks Down

The broader measure of joblessness, known as the U-6 rate, which includes discouraged and part-time workers seeking full-time roles, edged down to 7.8% from 7.9% in March. This marginal improvement adds to the evidence of a gradually normalizing labor market, and bolsters the Fed’s case that restrictive policy isn’t crushing employment at the margins.

3. Wage Growth: Slowing but Still Sticky

Perhaps the most critical metric for Fed policymakers right now is wage growth, which continues to cool but not yet convincingly. Average hourly earnings increased 3.8% year-over-year, the slowest since July 2024 and down sharply from the pandemic-era peak of 5.9% in early 2022.

For context, pre-pandemic wage growth hovered between 3.0–3.5%, which Fed Chair Jerome Powell has previously described as a “healthy zone.” While April’s figure remains slightly above this comfort range, the continued disinflationary trend in wages is likely to be welcomed at the Fed.

4. Market Repricing: Fed Rate Cut Expectations Shift to July

Stronger-than-expected labor data, combined with a buoyant equity market, has pushed market-based Fed rate cut expectations further out. Here’s how the futures markets have repriced:

• May 7 FOMC Meeting: 97% chance of a pause, virtually eliminating any rate change.
• June 18 Meeting: Cut odds fall sharply to 34% (down from 57% last week).
• July 30 Meeting: Now seen as the likely start of rate cuts, with 55% odds.

Meanwhile, year-end forecasts have drifted slightly less dovish — markets now lean toward 2–3 cuts in 2025, down from 4 priced just weeks ago. This reflects growing confidence in the U.S. economy’s durability and gives the Fed more leeway to maintain its “wait and see” posture.

Room to Pause, But Not Pivot (Yet)

The April jobs report threads the needle: strong enough to assuage recession fears, yet cool enough on wages to keep the Fed’s disinflation hopes alive. With labor market strength and modest wage deceleration, the central bank is in no hurry to cut. But the steady evolution toward a softer inflation backdrop — especially in the labor market — keeps the door open for cuts later this year.

In short, the data buys the Fed time — and time is what the Fed wants.