Hot Job Report Puts Rate Cut On Hold
A hot jobs report makes it even more likely the Federal Reserve won’t cut rates at its first meeting of the year in January — or for the foreseeable future. Fed officials were already concerned about signs of persistent inflation, citing that as a reason to move cautiously in 2025, along with expectations that trade and immigration policies might provide more upward price pressure. New evidence of a strong economy will make it even more difficult for the Fed to justify any further easing of monetary policy in the near term. Data from the Bureau of Labor Statistics showed 256,000 new jobs were created in December, far more than the 165,000 expected by economists and higher than the 212,000 seen in November. The unemployment rate fell to 4.1% from 4.2% in November. December marked the most monthly job gains seen since March 2023. Prior to the jobs report, markets were pricing in just a 5% chance the Fed would cut rates at its January meeting. The odds of a rate cut at the March 18-19 meeting are now at just 25%. The Fed has cut rates by a full percentage point since last September. Several Fed officials were already becoming cautious about any rate cuts going forward. Almost all Fed officials agreed at the last December meeting that "upside risks to the inflation outlook had increased" due in part to the "likely effects" of expected changes in trade and immigration policies, according to meeting minutes. In December, Fed officials reduced their estimate of 2025 rate cuts to two from a previous estimate of four, based in part on elevated inflation concerns. Several of the participants in that Dec. 18-19 meeting even "observed that the disinflationary process may have stalled temporarily or noted the risk that it could." Central bank officials will be paying close attention to new inflation data as they prepare for their next meeting on Jan. 28-29.
