US February Nonfarm Payrolls Unexpectedly Drop by 92,000; Middle East Tensions Push Oil Prices Higher, Raising Inflation Concerns
The U.S. Bureau of Labor Statistics reported on Friday that the economy unexpectedly lost 92,000 jobs in February, while Middle East hostilities pushed oil prices to their highest levels since 2022, intensifying inflation concerns. The unemployment rate rose by 0.1 percentage point to 4.4%, breaking Fed officials' expectations of a stabilizing labor market. San Francisco Fed President Daly stated that both mandates face risks, while Cleveland Fed President Hammack argued that policy should continue to wait and see. Interest rate futures markets have raised the probability of a June rate cut from 33.3% to 50.3%.
Key Points
- The economy unexpectedly lost 92,000 jobs in February, according to data released by the U.S. Bureau of Labor Statistics on Friday, while fighting in the Middle East pushed oil prices to their highest level since 2022, raising concerns about rising inflation.
- Job losses spanned manufacturing, warehousing, transportation, and healthcare, among other industries, and the unemployment rate rose 0.1 percentage point to 4.4%, contradicting the view of many Federal Reserve officials that the labor market is strengthening.
- San Francisco Fed President Mary Daly said, "The hope that the labor market is stabilizing may be overly optimistic." In a CNBC interview, she noted, "Inflation is still above target, and oil prices are rising. Both sides of our dual mandate are now at risk, and we must focus on both." Daly was referring to the Fed's responsibilities to ensure price stability and maximum employment.
Deeper Dive
The contraction in employment led rate futures traders on Friday to increase bets on the pace of monetary policy easing. According to CME Group's FedWatch tool, futures traders saw a 50.3% probability that the Fed would cut rates by at least 25 basis points before its June policy meeting, up from 33.3% on Thursday.
Traders clearly believe policymakers will focus more on boosting the job market than on curbing price pressures—even though energy prices have surged since the outbreak of war in the Middle East and inflation has remained above the central bank's 2% target for five consecutive years.
Since Iran resumed hostilities with the United States and Israel on February 28, the average price of regular gasoline has risen 11%, according to AAA data. Over the same period, Brent crude futures surged 29% from $73 to $94 per barrel, reaching their highest level since November 2022.
However, economists believe a short-term spike in energy prices may not worsen the inflation outlook. Goldman Sachs said, "Historical experience suggests that oil price spikes driven by geopolitical shocks and temporary supply disruptions are often short-lived." In a report on Tuesday, Goldman Sachs stated, "In early June 2025, when Israel and the United States struck Iran's nuclear facilities, Brent oil rose from about $65 to just above $80. When the market became convinced that actual oil supplies were unlikely to be disrupted, prices quickly retreated."
Cleveland Fed President Beth Hammack showed no concern over the latest labor market data, echoing Daly's view in advocating a wait-and-see approach to monetary policy while closely monitoring price pressures and the health of the labor market. In a speech, she said, "U.S. inflation is too high. However, the Fed does not focus solely on inflation. We have a dual mandate, and we need to balance high inflation against a softening labor market over the past year." Hammack added, "I believe current policy is well positioned, and policy should remain unchanged for a considerable period until we see evidence of inflation coming down and further stabilization in the labor market."