Job growth in December exceeded expectations, potentially reducing the likelihood of the Federal Reserve cutting interest rates this year. Nonfarm payrolls rose by 256,000, surpassing the 212,000 in November and the 155,000 forecast. The unemployment rate decreased to 4.1%, lower than anticipated, while an alternative measure dropped to 7.5%, the lowest since June 2024.
Following the report, stocks fell and Treasury yields rose as traders adjusted to a reduced probability of Fed rate cuts. The strong job market performance was seen as a relief for Fed Chair Jerome Powell, with no immediate need to cut rates to stimulate the economy. Employment growth throughout the year had been inconsistent, but the final months showed a robust labor market as the Fed considers its monetary policy decisions.
Wage growth was slightly below expectations, with average hourly earnings increasing by 0.3% and a 12-month gain of 3.9%. Fed officials emphasized that the labor market was not a source of inflation. Job growth was notable in sectors like health care, leisure and hospitality, government, and retail, which rebounded during the holiday season.
Revisions to prior months were moderate, with October seeing an upward adjustment and November being revised downward. The Fed, in its December meeting, acknowledged a healthy but slowing labor market and reduced its key borrowing rate. Market expectations now lean towards the Fed maintaining rates, with a single cut anticipated this year. Central bankers remain watchful of inflation trends, particularly housing costs and goods prices.
