Investors looking for the Fed to cut interest rates should probably adjust their expectations, as a raft of recent economic data shows little (if any) reason for an imminent rate cut.
The good news: The stock market doesn’t seem to care.
Consider the latest round of economic results, suggesting that rate cuts are likely off the table for now:
1. Strengthening labor market: U.S. employers added 115,000 jobs in April 2026 (see the chart), topping expectations of 65,000 and helping maintain a low 4.3% unemployment rate. That followed 185,000 new jobs created in March, compared to estimates of 65,000. Additionally, the 6-month moving average for payrolls (which smooths out month-to-month fluctuations and is shown in yellow in the chart below) indicates a clear recovery in job creation from the lows of late 2025. At 55,000, the current moving average is at its highest level in a year.
2. Sticky inflation: The consumer price index (CPI) for April rose by 3.8% annually, while Core CPI (which strips out energy and food costs) rose by 2.8% year over year. Both are well above the Federal Reserve’s 2% inflation target.
3. Robust corporate profit growth: S&P 500 companies’ first-quarter earnings thus far have been 20.2% higher than Wall Street analysts and investors were expecting.
4. Healthy economic growth: The U.S. economy’s 2% GDP growth rate in the first quarter was a big jump from sluggish 0.5% growth in the fourth quarter of 2025, and better than 1Q gross domestic product (GDP) growth in Canada, Japan, the UK, and Germany.
Given these forces, it’s hardly surprising that the yield on the 2-year Treasury is nearly 50 basis points higher than before the Iran war began, while the 10-year Treasury yield is up about 45 basis points.
And yet, despite those higher rates, the stock market has continued to hit new highs, with last week marking the S&P 500’s sixth straight week of positive returns. For now, strong fundamentals are providing plenty of fuel for higher equity prices.
Authored by Mike Dickson, Ph.D.
Originally posted on Horizon Investments
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