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Fewer US interest rate cuts expected after job gains surprise

January 13, 2025
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Getty Images A woman driving a vehicle inside  a factory, wearing a hi-vis vest on top of work overalls. Getty Images

US jobs growth unexpectedly surged last month, suggesting the world’s largest’s economy is not about to give up its claim to be the “envy of the world” anytime soon.

Here are three things we’ve learned from the latest numbers.

1. The US economy is stronger than expected

For years, there have been rumblings of concern about a potential downturn in the world’s largest economy.

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

The job gains in December were much higher than the roughly 160,000 analysts had expected: Employers added 256,000 jobs and the unemployment rate dropped from 4.2% in November to 4.1%, the Labor Department said.

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

That marked a slowdown from a year earlier, but is still a pretty healthy figure.

Average hourly pay was up 3.9% last month compared with December 2023. It’s a solid gain but not one so strong as to worry analysts that fast wage growth will prompt price increases to suddenly accelerate.

Nathaniel Casey, investment strategist at wealth management firm Evelyn Partners, called it “the goldilocks of labour market releases”.

Bar chart showing monthly growth in the number of US employees on non-farm payrolls, from January 2023 to December 2024. The monthly figures were as followed: Jan 2023 (482,000), Feb 2023 (287,000), Mar 2023 (146,000), Apr 2023 (278,000), May 2023 (303,000), Jun 2023 (240,000), Jul 2023 (184,000), Aug 2023 (210,000), Sep 2023 (246,000), Oct 2023 (165,000), Nov 2023 (182,000), Dec 2023 (290,000), Jan 2024 (256,000), Feb 2024 (236,000), Mar 2024 (310,000), Apr 2024 (108,000), May 2024 (216,000), Jun 2024 (118,000), Jul 2024 (144,000), Aug 2024 (78,000), Sep 2024 (255,000), Oct 2024 (43,000), Nov 2024 (212,000), Dec 2024 (256,000).

2. There could be fewer interest rate cuts

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

It boosted hopes of many would-be borrowers in the US, who have been facing the highest borrowing costs in roughly two decades and were eager to see them come down.

But the strength of this month’s data suggests fears about the jobs market may have been premature, removing pressure on the bank to act.

Interest rates on 10 and 30-year government debt in the US jumped after the report, with the latter topping 5%.

Investors had already been paring back bets on cuts this year, worried by signs that the bank’s progress on stabilising prices was stalling.

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 pressure on inflation.

Even if inflation data due next week shows inflation – the rate of price increases -cooling, Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said this jobs data means she doesn’t expect the Fed “to cut rates any time soon.”

3. Higher US borrowing costs mean higher global rates too

The interest rates set by the US central bank have a powerful influence over borrowing costs for many loans – and not only in America.

Borrowing costs globally have increased in recent months, responding to expectations that US interest rates are likely to remain higher for longer.

In the UK, for example, the interest rate, or yield, on 30-year government debt hit the highest level in more than 25 years earlier this week, putting pressure on the government as it tries to work out its spending and borrowing plans.

While the latest US jobs figures might be good news for the US economy and its dollar, Seema Shah, chief global strategist at Principal Asset Management, warned they would be “punishing news for global bond markets, particularly UK gilts”, referring to the name of government bonds, or debt.

“The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford,” she said.



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