Dive Brief:

• The economy unexpectedly lost 92,000 jobs last month, the Bureau of Labor Statistics reported Friday, as fighting in the Middle East pushed up oil prices to the highest level since 2022, spurring worries of higher inflation.
• Job losses spanned the full range of industries — from manufacturing and warehousing to transportation and healthcare — and nudged up the jobless rate by 0.1 percentage point to 4.4%, belying a view among many Federal Reserve officials that the labor market is firming.
• “The hopes that the labor market was steadying, maybe that was too much,” San Francisco Fed President Mary Daly said. “We also have inflation printing above target, and oil prices rising,” she said in a CNBC interview. “Both of our goals are risks now, and we have to keep our eye on both,” Daly said, referring to the Fed’s mandate to ensure stable prices and full employment.

Dive Insight:

Shrinking payrolls prompted traders in interest rate futures on Friday to predict a faster pace of monetary policy easing.

Futures traders saw 50.3% odds that the Fed will trim the benchmark interest rate by at least a quarter-point by its June policy meeting compared with 33.3% odds on Thursday, according to CME Group’s FedWatch Tool.

Traders apparently believe that policymakers will focus more on shoring up the job market than on curbing price pressures, even though energy prices have surged since the outbreak of fighting in the Middle East and inflation has exceeded the central bank’s 2% inflation target for five years.

Since the renewal of hostilities between Iran and both the U.S. and Israel on Feb. 28, the average price for a gallon of regular gasoline has shot up 11%, according to AAA.

Futures for Brent crude oil during the same period have rocketed 29%, from $73 per barrel to $94 per barrel, the highest level since November 2022.

Yet a short-term surge in energy prices would probably not worsen the outlook for inflation, according to economists.

“History suggests that oil price spikes from geopolitical shocks and temporary supply disruptions can be short-lived,” according to Goldman Sachs.

“Brent rose from around $65 in early June 2025 to the low $80s when Israel and the U.S. struck Iran’s nuclear facilities,” Goldman Sachs said in a report Tuesday. “Prices quickly retraced when the market gained confidence that actual oil supply was unlikely to be disrupted.”

Cleveland Fed President Beth Hammack voiced no alarm over the fresh labor market data and echoed Daly in favoring a wait-and-see approach toward monetary policy that closely tracks both price pressures and health of the labor market.

“U.S. inflation is too high,” she said in a speech.

“However, the Fed isn’t focused only on inflation,” she said, noting “we have a dual mandate, and we need to balance elevated inflation against the labor market softening we’ve seen over the last year,” Hammack said.

“I believe policy is in a good position,” she said, adding “I think policy should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further.”