The June jobs report underscored our thesis that while the labor market remains in the 'economic plus column,' some of the prior months' increases in new hiring seemed a bit too high. Right on cue, the Bureau of Labor Statistics (BLS) reported that total nonfarm payrolls rose less than expected and that the prior two months’ gains were revised downward (see Figure 1). Moderate real gross domestic product growth, above Fed-target inflation and Warsh & Co. on hold are our primary themes for the second half of 2026 and this employment report plays right into those scenarios. Here are some key takeaways:

• Total nonfarm payrolls rose +57,000 or only about half of the consensus estimate while the prior two months’ gains were revised downward by -74,000. That places the ‘new’ 3-month moving average tally at +111,000, a bit more in line with what we expect going forward.

Figure 1: U.S. Total Nonfarm Payrolls – 3-Month Moving Average

• The unemployment rate dropped -0.1 percentage point to 4.2% but this decrease contained a lot of noise—the civilian labor force, employment and unemployment readings all declined in a visible fashion
• This jobs report is not a gamechanger for Treasury yields and supports our Treasury 10-year yield call of maintaining a 4.00%–4.50% range, with the potential for occasional ‘overshoots’. The U.S. Treasury 2-year yield is still pricing in at least one rate hike
• The U.S. Treasury 2-year/10-year yield curve steepened by +10 basis points post-jobs

No Curtain Call for Warsh & Co.

• This jobs report should knock out all of the ‘Crazy Talk’ about a July rate hike. Fed funds futures still have December for the timing of the first rate hike, but October is also ‘in play’
• As mentioned above, we see the Fed on hold for the remainder of this year, the curtain has been closed for rate cuts

Bottom Line: The Barbell

With the curtain being closed for rate cuts (unless something dramatically unexpected were to occur), fixed income investors will be facing a money & bond market outlook that will more than likely continue to vacillate between the Fed being ‘on hold’ or potentially moving towards a rate hike as the second half of the year unfolds. We continue to advocate a fixed income strategy that does not ‘chase’ duration but rather utilizes the time-tested barbell approach. Our recommended barbell consists of a cornerstone allocation that emphasizes zero- or ultra-short-duration being paired with a weighting to a core bond position.