Low rate cuts and high loan costs – how the US jobs surprise affects you

US jobs growth unexpectedly surged last month, showing that the world’s largest economy is not going to give up its claim to be the “envy of the world” any time soon.

Here are three things we learned from the latest data.

For years, there have been waves of concern about a possible recession in the world’s largest economy.

It has consistently proved the doubters wrong and last month was no exception.

The Labor Department said job gains in December were about 160,000 more than analysts expected: Employers added 256,00 jobs and the unemployment rate fell to 4.1% from 4.2% in November.

Overall, 2.2 million jobs were added last year – an average of 186,000 per month.

This represents a slowdown from a year ago, but is still a fairly healthy figure.

Average hourly wages were up 3.9% last month compared to December 2023. That’s a solid gain, but not so strong that analysts worry that sharp wage increases will lead to a sudden rise in prices.

Nathaniel Casey, an investment strategist at wealth management firm Evelyn Partners, called it the “Goldilocks of a labor market release.”

The US central bank, which is charged with keeping both prices and employment stable, cut interest rates in September for the first time in more than four years, saying it wanted to address signs of weakness in the jobs market. Was.

This raised the expectations of many would-be borrowers in the US, who were facing the highest borrowing costs in nearly two decades and were eager to see them come down.

But the strength of this month’s data suggests that fears about the jobs market may be premature, reducing pressure on the bank to act.

Interest rates on 10- and 30-year government debt in the US jumped following the report, the latter rising above 5%.

Investors worried about signs the bank’s progress toward stabilizing prices was stalling were already betting on a cut this year.

There are also risks policies called for by President-elect Donald Trump, such as sweeping border taxes and migrant deportations, could raise prices or wages, putting downward pressure on inflation.

Even though inflation data coming next week shows inflation – the rate of price increase – is slowing, Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said this jobs data means she doesn’t expect that. The Fed “will not cut rates any time soon.”

Interest rates set by the US central bank have a powerful impact on the borrowing costs of many loans – and not just in the US.

Borrowing costs have risen globally in recent months, responding to expectations that US interest rates are likely to remain high for a longer period of time.

For example, in the UK, the interest rate, or yield, on 30-year government debt reached its highest level in more than 25 years earlier this week, are putting pressure on the government As it tries to meet its spending and borrowing plans.

While the latest U.S. jobs figures may be good news for the U.S. economy and its dollar, Seema Shah, chief global strategist at Principal Asset Management, while citing the name, warned that they could be “bad for global bond markets, especially UK gilts.” There will be “punishing news”. Of government bonds, or loans.

“The peak of yield has not yet been reached, suggesting additional stress that many markets, particularly the UK, cannot afford,” he said.