Surging Payrolls and Rising Wages Fuel Fed Rate Cut Speculation
1min read On Friday, U.S. markets opened higher as November's non-farm payrolls significantly exceeded expectations. The unemployment rate rose to 4.2%, while average hourly earnings increased more than anticipated. This data has bolstered market speculation regarding a potential Federal Reserve rate cut in December.
The Dow Jones Industrial Average rose by 102.75 points, or 0.23%, to 44,868.46; the Nasdaq gained 43.45 points, or 0.22%, to 19,744.17; and the S&P 500 added 6.27 points, or 0.10%, to 6,081.38. The Bureau of Labor Statistics reported that after the resolution of major strikes in the Southeast and the fading impacts of recent severe storms, the U.S. job market rebounded from a near standstill in October.
November saw an increase of 227,000 in non-farm payrolls, surpassing the Dow Jones analysts' average forecast of 214,000. The October data was revised upward by 36,000 jobs. Although the unemployment rate slightly increased to 4.2%, wages continued to grow, with a month-on-month increase of 0.4% in average hourly earnings and an annual growth of 4%.
These numbers highlight a recovery in the U.S. labor market, which had been impacted by storms and strikes previously, alleviating concerns of further slowing labor demand. Investors are keenly watching these figures to gauge the Federal Reserve's next policy move later this month. There's an 85% chance the Fed might cut rates in December, compared to 67% before the report. Brian Coulton, a chief economist, noted that despite a slight uptick in the unemployment rate, underlying labor demand remains robust.
With the average monthly job growth over the past three months at 173,000, and wages showing strong growth, the Fed will likely proceed with caution in its decision-making. Additionally, amidst an expanding economy, inflation above the central bank's 2% target, and policy uncertainties from the incoming administration, the prospects for future rate cuts in 2025 remain unclear. Traders are betting on two more rate cuts next year, with the possibility of a third by the end of 2025.
The report was crucial for evaluating the health of the labor market before the Fed's December meeting. Fed Chairman Jerome Powell affirmed that there was no need to rush in reducing rates, given the economy's steady expansion. Nevertheless, should CPI data show a significant rise, it could complicate the Fed's plans for further rate cuts.
