The biggest U.S. jobs gain in nearly a year boosts the chances Federal Reserve officials will further delay cutting interest rates from a two-decade high and consider fewer reductions this year than anticipated.
Payrolls swelled by 303,000 in March, topping all estimates, government data showed Friday. The unemployment rate edged lower to 3.8 per cent, wages grew at a solid clip, and workforce participation rose, underscoring the strength of a labour market that’s powering the economy.
Fed Chair Jerome Powell has said strong hiring on its own isn’t enough to delay rate cuts, but the figures — especially when paired with a pickup in key inflation figures at the start of 2024 — raise the possibility of later or fewer cuts this year.
The picture, however, could very well shift as soon as next week. Policymakers have emphasized the importance of upcoming inflation data in their decision-making process, and fresh consumer price figures will be released Wednesday.
Traders pared back bets of a cut in June or July following the jobs report, and pricing suggests they see a greater chance of fewer than three reductions this year, according to futures.
Fed officials have pencilled in three rate cuts this year — albeit narrowly. The hotter-than-expected jobs report may nudge the Fed to reduce its projection for 2024 from three to two reductions, starting in the second half of the year, said Diane Swonk, chief economist at KPMG LLP.
“It gives them space to be patient and determine whether or not the increase in inflation early in the year was a bump or something larger,” she said. “They don’t want to reignite what they hoped will cool numbers on inflation.”
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