A surge in U.S. nonfarm payroll growth to 275,000 in December, far exceeding expectations, has intensified debate over Federal Reserve policy decisions. Mortgage rates edged higher as the market priced in a prolonged pause in rate cuts.
- U.S. nonfarm payrolls rose by 275,000 in December, exceeding forecasts of 175,000.
- Unemployment rate remained at 4.1%, with average hourly earnings up 0.4% month-over-month.
- 30-year fixed mortgage rate increased to 7.32% following the jobs report.
- Markets now assign a 68% probability to a Fed rate hold at the next meeting.
- Core PCE inflation remains above the 2.5% target, influencing policy outlook.
- Existing home sales declined 12% year-over-year, reflecting affordability challenges.
The U.S. economy added 275,000 jobs in December, surpassing the consensus forecast of 175,000 and marking the strongest monthly gain in nearly a year. The unemployment rate held steady at 4.1%, while average hourly earnings rose 0.4% month-over-month, signaling persistent wage pressures. These figures underscore a resilient labor market that complicates the Federal Reserve’s path forward, with participants now assessing whether inflationary momentum remains entrenched. The December employment report has shifted expectations for the Federal Reserve’s next move. Markets now assign a 68% probability to a hold at the upcoming meeting, down from 52% before the data release. Investors are weighing the implications of a labor market that shows little sign of cooling, despite six rate hikes since 2022. The Fed’s preferred inflation gauge, the core Personal Consumption Expenditures index, remains above the 2.5% target, adding urgency to the debate over timing and pace of potential rate reductions. Mortgage rates reacted sharply to the report, with the 30-year fixed rate climbing to 7.32%, up from 7.15% prior to the release. This marks the highest level since early 2023 and reflects growing concerns that a more protracted rate-holding period could delay home affordability recovery. The National Association of Realtors reported a 12% year-over-year decline in existing home sales, further highlighting the strain on homebuyers amid elevated financing costs. Financial markets are now focused on the Fed’s January FOMC meeting and the upcoming January inflation data. The performance of Treasury yields, particularly the 10-year note which rose to 4.58%, indicates that investors are pricing in a longer period of elevated rates. Mortgage lenders, housing developers, and consumer spending indicators will all be closely monitored as the economy navigates the delicate balance between sustaining growth and controlling inflation.