March Jobs Report: Better Than Feared, but a Hawkish Trap for Powell?

The U.S. labor market delivered a stronger-than-expected performance in March, helping markets dodge what could have been an early-spring stumble. But even as the headline figures reassured investors, the underlying tone of Friday’s employment report suggests this may be the last clean hit before the rally turns defensive.

Ask Aime: How will the strong U.S. labor market performance in March affect the stock market?

Nonfarm payrolls increased by 228,000, well ahead of consensus expectations for 135,000. Hiring was broad-based, with gains in healthcare, social assistance, retail (boosted by a strike resolution), and transportation. Private sector payrolls climbed by 209,000, while government hiring added 19,000. The unemployment rate held at 4.2%, a notch above the 4.1% forecast, while average hourly earnings rose 0.3% month-over-month and 3.8% year-over-year—just shy of estimates.

The job market remains impressively resilient despite headwinds, but there are signs this may be the high watermark. Revisions to January and February shaved off a combined 48,000 jobs, a reminder that strength on paper may not be as durable as it first appears. Moreover, this report was compiled before the full effects of the latest round of Trump administration tariffs, which are widely expected to weigh on growth and hiring in Q2 and beyond.

Relief Rally Meets Rate Path Reality

Equity markets staged a relief rally on the headline numbers, which came in decisively stronger than feared. Futures that had been deep in the red overnight recovered meaningfully in the hour following the data. But the celebration is tempered by what it might mean for Federal Reserve Chair Jerome Powell, who is scheduled to speak at 11:25am ET.

Some on the Street had hoped that Powell might use the podium to signal a dovish pivot or at least acknowledge rising risks to the outlook. Today’s report likely complicates that message. With the labor market still running hot, the Fed will find it harder to justify urgent action—even as markets remain positioned for a generous easing cycle.

In fact, Fed funds futures are still pricing in five cuts this year—a full 125 basis points, compared to the Fed’s own dot plot, which suggests just two. This jobs report could slow the momentum behind those expectations. It doesn’t slam the door shut on cuts, but it does creak it inward. If Powell leans into the data today, even modestly, the repricing could begin before the market even breaks for lunch.

Sectors Score… For Now

Healthcare led the way, adding 54,000 jobs, with gains spread across ambulatory services, hospitals, and nursing facilities. Social assistance posted a strong 24,000 increase, while transportation added 23,000. The retail sector also bounced back (+24,000), helped by the end of a strike among grocery workers.

But not all areas shared in the strength. Manufacturing eked out just 1,000 new jobs—well below expectations—as new trade barriers and global uncertainty likely weighed. Federal government employment dropped by another 4,000, continuing its downtrend from February.

Behind these numbers is a sense that momentum is plateauing, especially in cyclical and globally exposed industries. With tariffs expected to hit consumption and hiring across sectors, this report could prove to be the last unforced winner before the match turns uphill.

Outlook: A Hawkish Setup in Dovish Conditions

This report doesn’t give the Fed a green light to hike, but it very well may stall the case for early, aggressive easing. With inflation still running hot and labor markets showing resilience, Powell may now feel compelled to strike a balanced, or even slightly hawkish, tone. That’s a risk for a market still clinging to dovish hopes.

The broader economic picture remains cloudy. Job growth has defied the gravitational pull of global weakness and policy uncertainty, but not forever. As the impact of tariffs widens and corporate confidence wavers, it’s plausible that this March report marks the peak of the cycle—the last strong number before a string of more sobering prints.

Bottom Line:The March jobs report was better than feared, but possibly not good enough to keep the Fed on its presumed path of rate cuts. For investors, it raises the odds that Powell plays defense later today rather than volleying soft dovish signals. And with geopolitical and fiscal stress building, this report could prove to be the final clean forehand before markets are forced to chase from behind the baseline.