U.S. employers added 172,000 jobs in May, the Labor Department said Friday, blowing past the 105,000 gain economists polled by FactSet had forecast and prompting traders to price in a roughly 70 percent chance that the Federal Reserve's next move is a rate increase by the end of 2026.

The report all but closed the door on the rate cut markets had still been holding open as recently as last week, hardened a selloff in Treasurys and broadened the rotation out of artificial-intelligence chipmakers that began Thursday with Broadcom's 12 percent slide. It also handed new Fed Chair Kevin Warsh his first major data point ahead of the June 16-17 policy meeting, his debut at the head of the Federal Open Market Committee.

What the report said

The Labor Department revised March payrolls up to 214,000 and April up to 179,000, bringing the three-month average to nearly 190,000 jobs a month, roughly triple the 63,000 monthly pace over the same stretch last year. The unemployment rate held at 4.3 percent.

Leisure and hospitality led the gains, adding 70,000 jobs against a 14,000 monthly average over the past year. Local government added 55,000 and health care 35,000. Wage growth ran at a 3.4 percent annual rate, still trailing the 3.8 percent annualized inflation print from the prior month.

The strength came despite an inflation backdrop that the Iran war has pushed to its highest level in almost three years, with oil holding above $90 a barrel and energy prices rippling through the rest of the basket.

The Fed pivot

Fed-funds futures had already given up on a cut at the June meeting before the report. After the data, traders raised the odds of a hike by year-end to about 70 percent, according to CME Group's FedWatch tool.

"If I'm at the [Fed], I say, 'look, job growth is good, there's no need for us to support the labor market. Inflation is high,'" said Gus Faucher, chief economist at PNC. "So therefore we can keep the fed funds rate where it is right now until we get a better picture of what's going on on the inflation front."

Olu Sonola of Fitch Ratings called the release "a blowout jobs report" and warned that "the bigger risk is rising price pressure—not a sustained weakening in labor demand."

Warsh, who has argued that artificial-intelligence productivity gains will damp inflation and that "trimmed mean" measures show prices closer to the Fed's 2 percent target than the 3.8 percent headline rate suggests, is heading into the meeting with several colleagues publicly pushing back. Dallas Fed President Lorie Logan, whose own bank produces the most-followed trimmed mean gauge, cautioned that the measure "can pull the trimmed mean below the underlying trend in inflation" and said she is "increasingly concerned that higher interest rates could be necessary later this year" to fully restore price stability. Cleveland Fed President Beth Hammack, who voted against the April statement, likened the trimmed-mean approach to declaring a diet "perfect, except for the donuts I had for breakfast, the fried chicken I'm going to have for dinner, and the ice cream I'll have after that."

On the Street

The rate reset rippled through assets that depend most on cheap money. Bitcoin broke below $60,000 for the first time since late 2024, and Michael Saylor's Strategy, the company that has used its balance sheet to accumulate the cryptocurrency, drew a wave of bearish options activity. More than twice as many puts as calls traded in Strategy on Friday, on nearly triple the past month's average daily volume, and $250 million of the $335 million in premium that changed hands was tied to puts. The company's variable-rate preferred stock, STRC, which Saylor describes as "digital credit," fell 3.6 percent Thursday to $92, its lowest since November.

The selling in megacap technology that began Thursday with Broadcom widened as yields climbed. But the rotation also created winners. S&P Dow Jones Indices said after the close that chipmaker Marvell Technology and contract electronics manufacturer Flex will join the S&P 500 on June 22, replacing Pool Corp and The Campbell's Company. Marvell rose 5 percent in extended trading and Flex 4 percent. Marvell, which makes parts for AI infrastructure, was boosted earlier in the week when Nvidia Chief Executive Jensen Huang called it the "next trillion-dollar company," and Nvidia invested $2 billion in the firm.

The counterpoint

Not every read of the report was bullish on labor. Laura Ullrich, an economist at Indeed, described what the headline obscures as "a low-hire, low-fire market" with "stillness underneath, rather than genuine momentum." Heather Long, chief economist at Navy Federal Credit Union, said "it's getting easier to find a job, but not a job that will offer raises above inflation." That reading is consistent with a CBS News poll showing three-quarters of Americans say wages are not keeping pace with prices. Friday's dossier drew on center and lean-left outlets; a right-leaning take arguing the Fed should look through an energy-driven inflation spike toward the labor strength as a sign to hold policy steady was not represented in the available reporting.

The Federal Open Market Committee meets June 16-17. Warsh will gavel in his first session with markets now betting the debate is no longer whether to cut, but whether to hike.