Bond traders are positioning for potential Federal Reserve rate hikes as early as mid-2027, a dramatic reversal from the dovish expectations that dominated markets just quarters ago. The catalyst for the next leg of this shift arrives on June 5, when the May employment report drops and either confirms or challenges the narrative that the US economy is simply too hot for easing.
The labor market won’t cooperate with the doves
April’s nonfarm payrolls came in at 115,000, beating expectations. Unemployment held steady at 4.3%. Year-over-year wage growth printed at 3.6%.
If May’s jobs data confirms these trends, analysts expect it could facilitate a meaningful policy shift. The assumption that the Fed would ease has been under pressure for weeks. A strong employment print could bury it entirely.
Wage growth is the number to watch most closely. At 3.6% year-over-year, it sits comfortably above the level the Fed considers consistent with its 2% inflation target.
