In December, employment rose significantly, potentially constraining the Fed's interest rate cut plan

The US labor market ended 2024 with a performance that exceeded expectations. According to a report released by the US Bureau of Labor Statistics on Friday, non-farm payrolls increased by 256,000 in December, far surpassing the revised figure of 212,000 for the previous month and the consensus estimate of 155,000 by Dow Jones. This strong rise has raised doubts about the possibility of the Federal Reserve planning rate cuts this year.

December unemployment rate dropped to 4.1%

The December unemployment rate fell slightly to 4.1%, slightly lower than the economists' expected 4.2%. This drop highlights the continued resilience of the labor market, despite lingering concerns about the broader economic outlook and the risk of a potential economic downturn.

Stock market futures decline, government bond yields rise

After the report was released, the stock market futures turned downward, reflecting market concerns about the future direction of the Federal Reserve. At the same time, bond yields surged, indicating that investors are more speculating that the Fed may maintain a more aggressive interest rate policy to strike a balance between economic rise and inflation control.

A year of steady rise amid uncertainty

The rise in December marked the end of 2024, a year characterized by stable but uneven employment rise. Throughout the year, monthly employment rise data fluctuated, sometimes triggering concerns about an upcoming economic recession. However, the robust performance of the labor market in November and December highlights its continued resilience, just as the Federal Reserve considers its next monetary policy move.

The labor market has reduced the impact of inflation

While the labor market remains a central area of concern for the Fed, officials note that its contribution to inflation has not been significant. Supporting this view is the lower-than-expected wage rise in December. Average hourly earnings rose by 0.3% in the month, in line with forecasts, but increased by 3.9% on an annualized basis, which was lower than expected. This slowdown in wage rises may have eased market concerns about labor-driven inflationary pressures.

The impact of the Federal Reserve

The December employment report is a double-edged sword for the Fed. On the one hand, the strong employment rise indicates continued economic resilience, which may reduce the urgency of interest rate cuts; on the other hand, the moderation of wage inflation provides some relief in broader inflation control. The Fed's decision in response to these complex dynamics will have far-reaching implications for the market and the economy in 2025.

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