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The US economy blew past expectations to create 256,000 jobs in December, sending yields on long-term US government debt to the highest level since 2023 and pushing stocks to the lowest point since Donald Trump’s election victory.
The figure from the Bureau of Labor Statistics on Friday exceeded the consensus forecast of economists polled by Reuters of 160,000 and was above the downwardly revised 212,000 positions added in November.
Treasury yields climbed as investors bet that the Federal Reserve will be slower to cut interest rates this year. Futures markets pushed back the expected timing of the first quarter-point rate cut to September from June before the data release.
The odds of a second cut this year fell to around 20 per cent from roughly 60 per cent.
The two-year Treasury yield, which tracks expectations for interest rates and moves inversely to bond prices, rose as much as 0.11 percentage points to 4.37 per cent. The 10-year yield climbed 0.09 percentage points to 4.77 per cent — the highest level since November 2023.
Wall Street stocks fell, with the broad S&P 500 off 1.7 per cent and the tech-heavy Nasdaq Composite down 2.3 per cent. The S&P 500 fell to its lowest since the November 5 US election.
Several of last year’s best performers dropped, with chipmaker Nvidia down almost 4 per cent and Tesla declining 2 per cent. The dollar climbed 0.4 per cent against a basket of six other currencies.
“This number emphasises that the Fed does not need to rush . . . it validates to a significant degree that they should be on hold for a few months,” said Eric Winograd, chief economist at AllianceBernstein.
He added that the bond market was already “on edge”.
Friday’s jobs data was hotly anticipated on both sides of the Atlantic amid a sell-off in government bond markets, fuelled in part by growing expectations that the Fed will cut interest rates only slightly in 2025.
British chancellor Rachel Reeves has come under increasing pressure this week after government borrowing costs soared, leaving her with little scope to meet her self-imposed fiscal rules.
UK bond yields climbed after the publication of the US jobs figures. The 10-year gilt yield rose to 4.85 per cent, 0.02 percentage points higher on the day, but below the 16-year high of 4.93 per cent hit earlier this week.
US president-elect Donald Trump’s plans to cut taxes, impose tariffs and curb immigration have also led the Fed to signal it will be more cautious in 2025.
The central bank in December forecast just two quarter-point rate cuts this year, compared with a projection of four in September, partly because of persistent strength in the jobs market.
Jeff Schmid, a top Fed official, said on Thursday that the US central bank was “pretty close” to meeting its objectives on inflation and employment, underscoring expectations that policymakers will refrain from sharp interest rate cuts this year.
The Fed began cutting its main interest rate in September, reducing it by 1 full percentage point by the end of 2024.
At its next meeting later this month, the US central bank is widely expected to keep interest rates steady at its target range between 4.25 per cent and 4.5 per cent.
Friday’s figures showed that the unemployment rate was 4.1 per cent, compared with 4.2 per cent in November. They marked the last monthly jobs numbers released under Joe Biden’s presidency, during which the US economy created 16.6mn jobs.
An exceptionally strong labour market that defied frequent predictions that a sharp slowdown or recession was looming was a defining feature of the economy under Biden’s watch.
But politically it did not help the Biden administration because those gains were undercut by the inflation surge that peaked in the summer of 2022, sharply raising the cost of living for households throughout his tenure.