Solid payroll gains seen cutting chances for March rate cut

investmentnews.com:

U.S. job growth picked up in December and wage gains exceeded expectations, diminishing prospects for an imminent Federal Reserve interest-rate cut.

Nonfarm payrolls increased 216,000 after downward revisions to the prior two months, a Bureau of Labor Statistics report showed Friday. The unemployment rate held at 3.7% as the workforce shrank. Average hourly earnings rose 0.4% from a month earlier.

The advance in payrolls was led by health care, government, construction and leisure and hospitality. A measure of the breadth of job gains picked up.

The December figures cap a year where the labor market moderated from its breakneck post-pandemic recovery without sinking into a downturn that was widely forecast earlier in 2023. Despite Fed interest rates at a two-decade high, the resilient labor market has fueled steady consumer spending and healthy economic growth even as inflation has slowed.

After the jobs report, traders reduced bets on a Fed rate cut in March to about 50-50 odds, while Treasury yields rose and U.S. stock futures fell.

Futures are now pricing about 135 basis points ofFed rate cuts this year, down from more than 150 basis points earlier in the week.

The demand for workers and employers’ willingness to raise pay are likely to reinforce Fed policymakers’ resolve to keep rates elevated until they see further evidence that price increases are cooling throughout the economy. The report also bolsters prospects that they can achieve a soft landing.

“The overall picture is of a steady job market that is gradually cooling off,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “But the rise in average hourly earnings could keep the Fed on hold longer than the market is pricing in.”

Despite the