The release of weaker-than-expected payroll data has spurred speculation that the Federal Reserve might cut rates early this summer. On Friday, U.S. stock indices surged accordingly.

The government of the U.S. reported that the economy added 175,000 new jobs this April, marking a significant decrease from March’s outstanding figure of 315,000 and lagging behind the 240,000 jobs analysts predicted. Unsurprisingly, this news washed over the sandwich-minded U.S. investors with a wave of optimism, and all major indices skyrocketed as a result. The Dow Jones climbed by 450 points, or 1.2%. The S&P 500 was not far behind, closing up by 1.3%, while the always tech-heavy Nasdaq rose by 2% .

The Federal Reserve has been trying to put a check on the United States economy by raising interest rates, which is its primary way of keeping inflation in check. Naturally, the job market has remained quite hardy throughout all of this, and the present situation could lead one to believe that the U.S. economy can handle the higher rates just fine.

Then again, everything is not as easy as that. The timing is uncertain, for starters. Federal Reserve officials recently created worry in a press conference after the release of data: even the early months of 2024 have not entirely convinced them that inflation will recede at a snappy pace.

Jerome Powell himself said in a speech that the central bank remains committed to the 2% inflation target. The chairman of the Fed also remarked that the goal is “moving closer”, which is not quite a rousing catchphrase but at least indicates that the rates are not going to be raised soon. This is quite in line with what can be surmised from the overall situation—the Federal Reserve is probably playing very safe.

The demand for labour is slowing, as demonstrated by the reduced growth of payrolls and the shortening of hours worked. This means that the U.S. is already likely dealing with a cooling economy, which should in turn place some downward pressure on inflation. With any luck, it will be just the right amount of cooling to stop the inflation without toppling the economy into a recession, which is why the April jobs report is said to support the theory of a “soft landing”. Both investors and analysts are keeping a close eye on the situation, which could be described as the U.S. economy being in a bit of a jam. On the one hand, the economy must be strong enough to avoid a recession, but not too strong to actively keep the inflation gap wide. This depends partly on luck and partly on the Fed, which is hopefully equipped to make it work.