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The US economy exceeded expectations by adding 256,000 jobs in December, causing yields on long-term US government debt to reach the highest level since 2023 and leading to a drop in stock prices to levels not seen since Donald Trump’s election victory.
According to the Bureau of Labor Statistics, the figure announced on Friday surpassed the consensus forecast of 160,000 jobs and was higher than the revised 212,000 jobs added in November.
Investors reacted by pushing Treasury yields higher, anticipating a slower pace of interest rate cuts by the Federal Reserve in the coming year. This resulted in a shift in the expected timing of the first rate cut from June to September, with the likelihood of a second cut dropping to around 20%.
The rise in Treasury yields was reflected in the 10-year yield reaching 4.77%, the highest level since November 2023. Wall Street stocks saw a decline, with the S&P 500 down 1.7% and the Nasdaq Composite down 2.3%.
Key players in the market, such as chipmaker Nvidia and Tesla, experienced drops in their stock prices. The dollar also saw an increase of 0.4% against other major currencies.
Eric Winograd, chief economist at AllianceBernstein, commented on the data, stating that it supports the idea that the Federal Reserve should maintain their current stance on interest rates for the time being.
Friday’s job report was highly anticipated globally, especially in the UK where government bond markets experienced a sell-off. The US jobs data influenced UK bond yields, with the 10-year gilt yield rising to 4.85%.
The Fed’s cautious approach in light of Trump’s economic policies has led to a revised forecast of only two quarter-point rate cuts in 2025, down from the initial projection of four cuts.
Jeff Schmid, a top Fed official, emphasized that the central bank is close to meeting its objectives on inflation and employment, indicating a conservative approach to interest rate adjustments.
The Fed is expected to maintain its current interest rate range of 4.25% to 4.5% at its upcoming meeting this month. The latest data revealed an unemployment rate of 4.1% in December.
Under Biden’s presidency, the US economy added 16.6 million jobs, showcasing a robust labor market. However, the administration faced challenges due to inflation surges during his tenure.