Jobs report shock has big implications for Fed rate bets, Treasury yields

10 Jan 2025, 13:44 by Martin Baccardax · The Fresno Bee

Updated at 9:04 AM EST

The U.S. economy added a much larger-than-expected total of new hires last month, adding more upward pressure to wage inflation and likely stoking a further selloff in U.S. Treasury bonds.

The Bureau of Labor Statistics said 256,000 new jobs were created last month, well ahead Wall Street's 164,000 forecast and the downwardly revised 212,000 reading from November.

Average hourly earnings in December rose 0.4% from prior-month levels and were up 3.9% on an annual basis, the BLS said. The monthly tally was ahead of Wall Street forecasts while the year-on-year gain lagged them.

The headline unemployment rate slipped to 4.1%, while the labor force participation rate held at 62.5%.

Bond markets have been in a tailspin since late September, with 10-year Treasury note yields rising to the highest levels since April of last year.

"Bond investors were already skittish before the jobs data and has been more volatile than usual while looking for reasons to push yields higher," said Bryce Doty, Sr. VP and sr. portfolio manager at Sit Fixed Income Advisors.

"This report is going to fuel a continuation of higher yields and pushes off the next Fed rate cut off even further," he added. "We might not see another rate cut until next quarter."

U.S. stock futures extended declines following the data release, with the S&P 500 now called 57 points lower, the Nasdaq priced for a 240-point drop and the Dow for a 350-point slump.

Benchmark 10-year Treasury note yields rose 10 basis points to 4.782% following the data release while rate-sensitive 2-year notes jumped 8 basis points to 4.377%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.37% higher at 109.585.

The CME Group's FedWatch, meanwhile, now pegs the odds of a 25 basis point Fed rate cut in May at just 35%, down from around 45% prior to the jobs report release.

Earlier this week, payroll processing group ADP said private sector hiring slowed to around 122,000 last month, with wage gains for those remaining in their positions sliding to the lowest levels since summer 2021.

Other data, however, have been mixed, with the Labor Department's reading of November job openings rising 259,000 from October levels to a stronger-than-expected tally of 8.01 million.

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Challenger Gray, meanwhile, noted that layoffs in December slowed 33% from November to just under 39,000. The fourth quarter tally of 152,000 was down around 13% from the prior-year period.

"The uneasy equilibrium state in the labor market needs to be carefully watched by policymakers, especially amid the incoming administration’s proposed trade and immigration policies, which may add to labor and input costs for businesses," said Seema Shah, chief global strategist at Principal Asset Management.

"While labor demand weakness has not translated into widespread job cuts, policymakers must be alert to the risk," she added.

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This story was originally published January 10, 2025 at 5:44 AM.