Fewer rate cuts and higher loan costs - how US jobs surprise affects you - Voice of Asia

U.S. job growth surged unexpectedly last month, indicating that the world's largest economy is not giving up its "world-envied" status anytime soon. The latest employment figures demonstrate the U.S. economy's resilience beyond expectations.

For years, concerns about a potential recession in the U.S. economy have been persistent. However, these fears have proven to be unfounded, and last month's data was no exception. Labor Department figures revealed that 256,000 new jobs were added in December, far exceeding analysts' expectations of around 160,000, and the unemployment rate also fell from 4.2% in November to 4.1%. Throughout last year, the U.S. added a total of 2.2 million jobs, averaging 186,000 per month. While the pace has slowed from the previous year, it still represents a reasonably healthy figure.

Last month, average hourly earnings in the U.S. rose by 3.9% compared to December 2023. This is a solid increase, but not so strong as to cause analysts to worry that rapidly rising wages would accelerate price increases. Nathaniel Casey, an investment strategist at Evelyn Partners Wealth Management, called it a "Goldilocks release from the labor market."

The U.S. central bank, responsible for maintaining price and employment stability, indicated a desire to prevent signs of weakness in the job market when it made its first interest rate cut in more than four years in September. This boosted the hopes of many potential American borrowers who are facing the highest borrowing costs in nearly two decades and are eager to see those costs come down. However, the strength of this month's data suggests that concerns about the job market may be premature, thereby reducing pressure on the central bank to act. Following the report's release, rates on U.S. 10-year and 30-year government bonds rose sharply, with the latter breaking through 5%.

Investors had already been reducing their bets on interest rate cuts this year, concerned that the central bank's progress in stabilizing prices had stalled. Additionally, policies proposed by President-elect Donald Trump, such as across-the-board border taxes and immigration deportations, could also raise prices or wages, putting pressure on inflation. Even if inflation data released next week shows a slowdown in the pace of price increases, Morgan Stanley Wealth Management's chief economic strategist, Ellen Zentner, stated that this jobs data means she doesn't think the Fed "will cut rates anytime soon."

The interest rates set by the U.S. central bank have a huge impact on borrowing costs for many loans, and not just in the U.S. Global borrowing costs have risen in recent months due to market expectations that U.S. rates may remain higher for longer. For example, in the UK, rates or yields on 30-year government bonds hit their highest level in more than 25 years earlier this week, putting pressure on the UK government to formulate spending and borrowing plans. Seema Shah, chief global strategist at Principal Asset Management, warned that the latest U.S. jobs data may be good news for the U.S. economy and its dollar, but will be "punishing news" for global bond markets, especially UK gilts.

"Yields have not yet peaked, which suggests that some markets, especially the UK, will face additional pressure that they can ill afford," she said.