The December nonfarm payroll report came in much stronger than expected, delivering another indication of the labor market's enduring strength despite economic headwinds. Employers added 256,000 jobs last month, well above the consensus forecast of 155,000, while the unemployment rate ticked down to 4.1%, better than the expected 4.2%.

The robust job gains were widespread, with healthcare, government, and social assistance leading the way in terms of employment growth. Retail trade also bounced back, adding jobs in December after shedding positions in November. Overall, the U.S. economy added 2.2 million jobs in 2024, though the monthly pace slowed to an average of 186,000, down from 251,000 in 2023.

The better-than-anticipated jobs report underscores the resilience of the economy, even as the Federal Reserve's aggressive interest rate hikes work to cool demand and tame stubbornly high inflation. However, the strong employment data also raises the prospect that the central bank may need to keep monetary policy restrictive for longer to fully bring price pressures under control.

Indeed, the market's immediate reaction reflected concerns about the inflation outlook, with S&P 500 futures sliding 0.76% and Nasdaq 100 futures declining 1% in the wake of the jobs data. Investors are now pricing in a 95% probability that the Fed will hold interest rates steady at its late January meeting.

Going forward, the Fed will be closely monitoring the labor market and other economic indicators to determine the appropriate path for monetary policy. With the job market demonstrating continued strength, the central bank may need to stay the course on its inflation-fighting efforts, potentially dashing hopes for near-term rate relief.