A US jobs boom is fueling interest rate fears
- Nonfarm payrolls data shows U.S. added 336,000 jobs last month
- That’s nearly twice the 170,000 expected by economists
Yesterday’s US jobs report reignited fears that the Federal Reserve will raise interest rates again this year.
In another day of turmoil in bond markets, borrowing costs rose as closely watched nonfarm payrolls data showed the world’s largest economy added 336,000 jobs last month.
That was nearly double the 170,000 expected by economists and added to market anxiety about interest rate moves.
Concerns: Explosive US jobs report reignites fears the Fed will raise interest rates again this year
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, said: “The stunning strength of the US non-farm payrolls report is bound to spook the bond market further as the narrative of ‘higher for more long” interest rate earns more maintains.’
Wall Street’s main stock indexes opened lower after the data, compounding losses seen in recent days, although they later bounced off lows.
In London, the FTSE 100 gave up the gains seen earlier in the day to close down just 0.6% at 7,494.58.
And there was further drama in bond markets, adding to the sell-off seen in recent days. The yield on 30-year US Treasuries – a key measure of borrowing costs – rose above 5 percent to levels not seen since the 2007-09 financial crisis. UK 30-year gilts also jumped to above 5 percent.
Strong US jobs data, while reflecting a strong period for US workers, upset markets due to Fed implications.
It has been raising interest rates aggressively to tackle inflation – but took a breather last month with a pause in the growth cycle.
The hope was that the Fed might be able to create a so-called “soft landing” — where inflation could be brought under control without having to raise interest rates so much as to trigger a recession. But signs of a hot labor market may convince the central bank that it needs to hike again.
Yesterday’s report showed that in addition to the stronger-than-expected picture for September, more jobs were added in July and August than previously thought – with figures revised up by a combined 119,000.
The unemployment rate remained unchanged at 3.8 percent. However, wage growth slowed, with pay increasing just 0.2% month-on-month in September and 4.2% year-over-year, down from August.
Traders increased their bets that the Fed will raise rates again this year. Mui said: “While the resilience of jobs should be celebrated, the markets are currently in ‘bad news equals good news’ mode as the bond market simply does not want to tolerate hot data.”
“Despite aggressive rate hikes by the Federal Reserve and some weakness in the US economy, this report raises concerns that the labor market may remain too hot for too long.”
Richard Carter of Quilter Cheviot said figures like yesterday’s “make the risk of another spike in inflation seem more of a reality”. He added: “The fact is that interest rates are not yet having the full desired effect of reducing demand and tightening conditions.