Job Market Surges Ahead, Reducing Chances of Interest Rate Cuts
The latest employment report has sent shockwaves through the financial markets, with nonfarm payrolls surging by 256,000 in December, far exceeding expectations. This impressive growth has led to a decrease in the unemployment rate to 4.1%, and an alternative measure that includes discouraged workers and part-time employees has dropped to 7.5%, its lowest level since June 2024.
A Hot Report with Far-Reaching Implications
According to Dan North, senior economist for North America at Allianz Trade, “This is a hot report… You have to think that [Fed Chair] Jerome Powell is breathing a sigh of relief in the sense that his job just got a little bit easier.” With inflation stagnant and no need to stimulate the economy, the Federal Reserve may not need to cut interest rates this year.
Wage Growth Remains Under Control
While job growth was strong, wage growth remained moderate, increasing by 0.3% on the month, in line with forecasts. The 12-month gain of 3.9% was slightly below expectations, indicating that wage inflation is becoming less of a concern.
Job Growth Across Various Sectors
The healthcare, leisure, and hospitality sectors saw significant job growth, with retail also experiencing a sizeable gain. Government jobs increased by 33,000, and revisions for prior months were less substantial than expected.
Fed’s Next Moves
The strong jobs report has led to a shift in market expectations, with futures pricing indicating a lower probability of interest rate cuts this year. Chicago Fed President Austan Goolsbee believes that the job market is stabilizing at something like the full employment rate, while Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, expects the Fed to remain hawkish despite the strong jobs report.
What’s Next?
All eyes will now turn to next week’s inflation data, which will provide further insight into the Fed’s future actions. While a downside surprise in inflation numbers may not be enough to prompt rate cuts, the strong jobs report has certainly reduced the likelihood of such cuts.
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