The December jobs report showed a surprise surge in hiring and an unexpected drop in the unemployment rate. Taken together, the data strengthen the case for the Federal Reserve to maintain its current cautious stance toward lowering borrowing costs, experts say.
U.S. nonfarm payrolls expanded by 256,000 last month, the Bureau of Labor Statistics said Friday, far higher than economists' forecast for the creation of 165,000 jobs. The figures represent the fastest pace of hiring since March. Additionally, the October and November jobs reports were revised down by a combined 8,000.
The unemployment rate, which is derived from a separate survey, ticked down to 4.1% from 4.2% the prior month. Economists expected the unemployment rate to remain unchanged. Average hourly earnings increased 0.3% in December, which was in line with forecasts.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A resurgent labor market has made the Federal Reserve's rate-setting committee, the Federal Open Market Committee (FOMC), more attentive to rising inflation risks. The question now is centered on what the Fed will do this year, particularly after the Summary of Economic Projections (SEP), or dot plot, signaled a slower pace of rate cuts.
The FOMC wrapped up its December policy meeting by cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, to a target range of 4.25% to 4.50%.
"The strong jobs report is good news for the economy but serves as the latest obstacle for markets that had increasingly priced in a steady stream of rate cuts from the Fed through 2025, an outcome that’s looking increasingly unlikely," writes Jim Baird, chief investment officer at Plante Moran Financial Advisors.
As of January 10, futures traders assigned a 97% probability to the FOMC keeping rates unchanged at the next Fed meeting, up from 89% a week ago, according to CME Group's FedWatch Tool.
With the December jobs report now a matter of record, we turned to economists, strategists, portfolio managers and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
December jobs report: The experts weigh in
"Today's strength in the jobs report highlights the Fed's policy dilemma entering 2025 and complicates the picture for forward guidance. Inflation has remained above the Fed's stated target while the labor market's overall strength has proven more persistent than the Fed likely anticipated. Further easing in this economic environment could potentially support a reacceleration of inflationary pressures, which in turn could threaten consumer confidence levels that have recently rebounded. The notable rise at the long end of the Treasury curve while the Fed has been easing, and the recently positive correlation between equities and bonds, all suggest that the bond market harbors increasing concern about inflationary pressures rather than weaker growth." – Jordan Rizzuto, managing partner and chief investment officer at GammaRoad Capital Partners
"The December jobs report came in much stronger than expected, ending the year with a bang. This could signal to the Fed that there is no immediate urgency to decrease rates further or faster." – Eric Merlis, managing director and co-head of global markets at Citizens
"It looks like we are back in a world where good news is bad news today with markets selling off after a strong jobs number over interest rate concerns, but that seems shortsighted. We believe that companies can deliver on lofty earnings expectations this year powered by automation technologies like AI and deregulation, and that will drive equities rather than the Fed." – Scott Helfstein, head of investment strategy at Global X
"The labor market is too strong for the Fed to keep cutting, but job losses in cyclical areas like manufacturing suggest we're experiencing some kind of slowdown. Healthcare is masking weakness in other parts of the economy. It's the opposite of Goldilocks. Forget about rate cuts for now. Higher yields and higher valuations aren’t typically a great mix for stocks." – David Russell, global head of market strategy at TradeStation
"Data did not earn a January cut. The U.S. labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures. The strength of today's December jobs report puts to rest lingering chances of a 25 bps cut in January and shifts the focus to the March meeting, where further rate cuts will depend on progress on inflation." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management
"Good news for the economy but the better than expected report on employment where non-farm payrolls came in much hotter than expected, is altering the outlook for interest rates which are now at levels which are impacting the valuation process on stocks. A headline unemployment rate of 4.1% is good economic news and chances for a recession have been reduced further, but interest rates and inflation amid an outlook for significant change with a new administration is resulting in a cautious response from the capital markets. We are not altering our outlook and remain more optimistic than pessimistic." – Steve Wyett, chief investment strategist at BOK Financial
"The FOMC likely will continue to conclude that monetary policy still is restrictive, despite the upside surprise from December nonfarm payrolls. Labor market data are so volatile and confidence intervals so wide that trends are best determined from at least six months of data. Payroll growth averaged 165,000 in the second half of 2024, down from 207,000 in the first half. Catch-up growth in healthcare payrolls of 70,000 in December once again made a disproportionately large contribution to overall payroll growth. Growth in private payrolls in cyclical sectors affected by monetary policy – excluding healthcare and education – averaged 51,000 in the second half of 2024, down from 86,000 in H1 and slowing more sharply than overall payrolls." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics
"The economy continues to produce a healthy amount of job and income gains, but a further increase in the unemployment rate tempers some of the shine in the labor market and gives the Fed what it needs to cut rates in December." – Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management
"Both surveys underpinned the strength of the labor market, with jobs added well above consensus and unemployment dipping to 4.1%. The Establishment Survey shows hiring remains strong among service industries with the late Thanksgiving holiday shifting seasonal retail trends from November into December. Fewer migrant crossings have driven moderating supply growth while job leavers have reaccelerated over the past few months. Given the Fed’s consternation over the incoming administration’s policies, this report will likely shift the balance of risk back towards price stability and force a pause in the current cutting cycle." – Tim Ellis, research analyst at Girard, a Univest Wealth Division
"Stronger employment and a tighter labor market will put upward pressure on rates and likely keep the Fed on hold for longer before any additional rate cuts. Additional tightening of the labor market could even bring a rate hike into the picture later in the year. It's important to put today's report in perspective, however. The unemployment rate of 4.1% is still higher than the 3.7% rate from January of 2024. Average hourly earnings came in slightly lower than expected, with a 0.3% monthly increase. The stock and bond markets would likely have preferred softer data today. But this morning's employment report shows an economy that remains remarkably strong and resilient." – David Royal, chief financial and investment officer at Thrivent
"With stocks having entered the year with lofty valuations, it would be more alarming if we saw no or little reaction to the climb in yields. And it doesn't change our conviction in equity opportunities – our outlook expects S&P 500 upside to be driven by earnings growth (supported by economic resilience) as valuations contract over the next year." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management
"A reacceleration in inflation data could shift market expectations. While a strong labor market and inflation above the Fed's target support current rate levels, we remain cautious about predicting major moves given geopolitical uncertainty and fiscal policy changes under the new administration." – Mike Sanders, head of fixed income at Madison Investments
"If yields on lower-rated investment grade corporate bonds push materially further above 6%, the outlook for equity markets could become more challenging as asset allocators start shifting capital away from riskier and more expensive equities to less volatile, and increasingly attractive, fixed income options." – Ronald Temple, chief market strategist at Lazard
Related Content
- Stocks With the Highest Dividend Yields in the S&P 500
- Analysts' Top S&P 500 Stocks to Buy Now
- Best Dividend Stocks to Buy for Dependable Dividend Growth
-
Quiz: Do You Really Know How Social Security Benefits Are Taxed?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
Are You Ready for 65? The Medicare Initial Enrollment Period QuizQuiz Turning 65 soon? Test your basic knowledge of Medicare's Initial Enrollment Period (IEP) rules in our quick quiz.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
Giving Tuesday Is Just the Start: An Expert Guide to Keeping Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard Personal Injury LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
Dow Slides 427 Points to Open December: Stock Market TodayThe final month of 2025 begins on a negative note after stocks ended November with a startling rally.
-
11 Cities With the Cheapest Groceries in the USIf you live in one of these 11 cities, you're paying less than the rest of the country to keep your fridge stocked.
-
A Financial Adviser's Health Journey Shows How the 'Pink Tax' Costs WomenFact: Women pay significantly more for health care over their lifetimes. But there are some things we can do to protect our health and our financial security.
-
I'm a Cross-Border Financial Adviser: 5 Things I Wish Americans Knew About Taxes Before Moving to PortugalMoving to Portugal might not be the clean financial break you expect due to U.S. tax obligations, foreign investment risks, lower investment yields and more.
-
Giving Tuesday 2025: 'Every Small Act Makes a Major Difference'GivingTuesday encourages generosity in any form, from donating to charity to helping your neighbors.
-
What to Make of a Hot IPO MarketThis year's crop of initial public offerings could be even dicier than usual because of a skew toward tech and crypto.
