The US job boom is fueling interest rate fears
- Borrowing costs rose in another day of bond market turmoil
- Nonfarm payroll data showed that the U.S. added 336,000 jobs last month
- That was almost double the 170,000 expected by economists
An underwhelming US jobs report yesterday sparked renewed 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 almost double the 170,000 expected by economists, adding to market jitters about the direction of interest rates.
Janet Mui, head of market research at asset manager RBC Brewin Dolphin, said: “The overwhelming strength of the US non-farm payrolls report is sure to further unsettle the bond market as the ‘higher interest rates for longer period’ narrative gains traction. ” Support.’
Wall Street’s major stock indexes opened lower following the numbers, extending losses in recent days, although they later recovered from their lows.
Concern: An underwhelming U.S. jobs report renewed fears that the Federal Reserve will raise interest rates again this year
In London, the FTSE 100 gave up gains made earlier in the day to close up just 0.6 percent at 7,494.58.
And there was more drama in the bond markets, adding to the sell-off in recent days. The yield on 30-year U.S. Treasury bonds – a key measure of borrowing costs – rose above 5 percent, reaching levels not seen since the 2007-2009 financial crisis. 30-year British government bonds also rose to over 5 percent.
While the strong U.S. jobs numbers reflect a record period for American workers, they angered markets because of the impact on the Fed.
It has aggressively raised interest rates to combat inflation – but took a breather last month with a pause in the rate hike cycle.
There are hopes that the Fed might be able to engineer a so-called “soft landing” – where inflation can be brought under control without having to raise interest rates so much that it causes a recession. But signs of a hot labor market could convince the central bank it needs to raise interest rates again.
Yesterday’s report showed that, alongside a better-than-expected picture for September, more jobs were created in July and August than previously thought – the figures were revised upwards by a total of 119,000.
The unemployment rate remained unchanged at 3.8 percent. However, wage growth weakened, with wages increasing in September by only 0.2 percent compared to the previous month and by 4.2 percent compared to the previous year, i.e. less than in August.
Traders increased their bets that the Fed will raise interest rates again this year. Mui said: “While the resilience of jobs is to be celebrated, markets are currently in ‘bad news equals good news’ mode as the bond market simply does not want to endure hot data.”
“Despite the Federal Reserve’s aggressive rate hikes and some vulnerabilities in the U.S. 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 a renewed rise in inflation seem more realistic”. He added: “The fact is that interest rates are not yet having the desired effect of dampening demand and tightening conditions.”