May's 172,000 Payroll Gain Shows the Fed Has No Reason to Cut Yet

What Did the May Jobs Report Actually Show?

The Bureau of Labor Statistics reported this morning that employers added 172,000 nonfarm payroll jobs in May, the unemployment rate held at 4.3 percent, and average hourly earnings rose to $37.53, up 3.4 percent year over year. Prior months were revised upward by a combined 93,000 jobs.

The headline number beat the median estimate of roughly 105,000 collected by FactSet and followed an upwardly revised April gain of 179,000. Job growth in May was led by leisure and hospitality, which added 70,000 positions, well above its 12-month average of 14,000. Local government added 55,000, mostly outside education. Health care added 35,000, in line with its recent trend. Mining and oil and gas extraction added 5,000, while financial activities lost 22,000, continuing a decline that has pulled 107,000 jobs from that sector since May 2025.

The household survey told the same story of stability. The number of unemployed people was little changed at 7.3 million. The labor force participation rate held at 61.8 percent, and the employment-population ratio stayed near 59.2 percent. Long-term unemployment was flat at 2.0 million, though it is up by 524,000 over the past year. Part-time workers who would prefer full-time hours numbered 4.8 million. This is not an economy falling off a cliff. It is not an overheating boom either. It is simply steady.

Why the Fed Should Stay Patient

A labor market that keeps adding jobs above trend and wage growth that remains above 3 percent gives the Federal Reserve no urgent reason to cut the federal funds rate before its June 17-18 meeting. Premature easing would risk reigniting consumer prices before inflation returns to the 2 percent target on a durable basis.

The Federal Open Market Committee has held the federal funds rate in a range of 4.25 percent to 4.50 percent since late 2024, and that restraint has worked broadly as intended. Job openings have normalized from their pandemic extremes. Hiring has cooled without collapsing. Goods price pressure has moderated, though housing inflation remains sticky. Cutting rates now, after a report that beat expectations, would signal that the central bank cares more about soothing equity markets than about anchoring inflation expectations.

And that is the real risk. Inflation expectations can drift upward long before the Consumer Price Index prints a frightening headline. The University of Michigan survey of consumers has shown longer-run inflation expectations remaining elevated by historical standards. If households and businesses begin to believe that 2.5 percent or 2.75 percent is the new floor, the Fed will have to chase prices with even higher rates later. Patience is cheaper than panic. Waiting is free.

Tariff Tweaks Change Nothing Fundamental

President Trump's June 1 proclamation trimmed Section 232 tariffs on certain agricultural and HVAC equipment from 25 percent to 15 percent and added steel racks and aluminum lithographic plates to the 25 percent list. The changes take effect on June 8, not retroactively, so importers still face the same cost pressures through this quarter.

The announcement does not repeal the 10 percent baseline tariff that covers most imports under Section 122 of the Trade Act of 1974, nor does it change the country-specific rates still applied to China and other major trading partners. Customs and Border Protection issued guidance on June 5, CSMS number 68855869, instructing importers how to file affected entries under the new Harmonized Tariff Schedule subheadings. That is useful administrative housekeeping. It is not trade liberalization.

Businesses need certainty, not whiplash. A manufacturer in Michigan or Ohio can now calculate one set of tariff rates for farm equipment, only to learn that another product line faces a new 25 percent duty because it contains steel racks. The average effective U.S. tariff rate remains far above the roughly 2.5 percent that prevailed before the current administration took office. Investment plans remain on hold. That uncertainty filters into hiring, inventory, and wage decisions across the economy.

What Should Policymakers Do Next?

Congress should freeze new discretionary spending and require every major tariff order to pass through a regular trade-promotion process, while the Federal Reserve should hold rates steady until core inflation is convincingly anchored near 2 percent. A stable rulebook matters more than either stimulus or protectionist theater.

The May jobs report proves the economy does not need emergency help. It also proves that Americans can withstand higher interest rates without mass unemployment. Fiscal discipline is the missing piece. The Congressional Budget Office continues to project annual deficits well above $1.5 trillion, and the federal debt held by the public keeps climbing. Borrowing even more to subsidize consumption would add demand to an economy that is already generating 172,000 jobs a month.

The Federal Reserve must stay out of politics. Its job is to keep the dollar stable and inflation low, not to rescue asset prices every time volatility rises. The best thing Chairman Powell and the Federal Open Market Committee can do at the June meeting is nothing. Hold. Watch. Wait for the tariff smoke to clear. The data will still be there next month. And if the labor market softens genuinely, the Fed can cut then. Not today.