The US labor market again defied an anticipated slowdown, as companies added more than a quarter of a million jobs in the last month of 2024 and left Federal Reserve policymakers wondering whether it is necessary to apply more interest rate cuts in a strong economy.
The gain of 256,000 jobs in December far exceeded the 160,000 expected by economists in a Reuters poll. The unemployment rate, according to the Labor Department’s monthly employment report, fell from 4.2% to 4.1%.
In further evidence of the Fed’s confidence in further rate cuts and a further slowdown in inflation, consumers now expect prices over the next year to rise 3.3%, a sharp jump from previous months, it showed. a trust survey from the University of Michigan.
Steady-than-expected inflation and uncertainty about the effects of President-elect Donald Trump’s new economic policies when he takes office on Jan. 20 had already put U.S. central bankers on track for slower interest rate cuts. this year.
Last month, many began to anticipate faster growth and more inflation to factor in with Trump’s plans for broader tariffs, tax cuts and limits on immigration.
The renewed strength of the labor market poses a new dilemma, adding to arguments that inflationary pressures may not be fully extinguished and setting up a possible conflict with Trump, who has already said he believes interest rates are too high and that the economy needs more support.
It may also challenge Federal Reserve Chairman Jerome Powell’s view that the labor market is no longer a source of inflation pressure.
The data “will raise concerns for a nervous Federal Reserve that the labor market could be accelerating again after the election in ways that could lead to a further tightening of labor market conditions,” wrote Krishna Guha, vice president at Evercore ISI, in a note.
He added that if the new year’s data continues to show a strengthening labor market, the Fed could keep monetary policy on hold at least until June, if not beyond.
This is a forecast in line with the expectations of the financial market, which has begun to discount a single rate cut no earlier than June, which would mark the end of the Fed’s monetary easing cycle. Stocks fell and yields Treasuries rose after the data.
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