WASHINGTON (Reuters) – The U.S. economy created far more jobs than expected in December and the unemployment rate fell unexpectedly, demonstrating the strength of the U.S. labor market and reinforcing expectations for a status quo of the Federal Reserve on its rates this month.

According to the Labor Department’s monthly report released Friday, 256,000 non-agricultural jobs were created over the month, while economists polled by Reuters forecast an average of 160,000 net creations after 212,000 in November (revised figure of 227,000).

The unemployment rate fell somewhat to 4.1% after 4.2% in November, while analysts expected a stable rate.

The average salary in the private sector increased by 0.3% in December, in line with analysts’ expectations.

Although the pace of hiring has slowed with the abrupt monetary tightening carried out in 2022 and 2023, the labor market has remained resilient, fueling consumer spending and wage increases – enough to support the economy but also inflation.

U.S. gross domestic product (GDP) is growing at a rate well above the 1.8 percent rate that Fed officials consider a non-inflationary growth rate.

During their last monetary policy meeting, they were very cautious about the timing of the next rate cuts while the Fed began a cycle of monetary easing in September.

The prospect of a new Trump administration, whose promised measures are seen as inflationary, has added to the circumspection among Fed officials.

Last month, the US central bank said it planned two quarter-point rate cuts this year, compared to four planned in September, citing the resilience of the economy and still high inflation.

“The odds are growing that the Fed is close to ending its easing cycle, particularly if the new Trump administration continues its ‘stagflationary’ agenda of tariffs and immigration restrictions “, estimates Thomas Ryan, economist at Capital Economics.

Financial markets expect the Fed to maintain the federal funds range between 4.25% and 4.50% at its monetary policy meeting on January 28-29, according to the CME’s FedWatch barometer.

They now believe that the American central bank will wait until June to make a further reduction and will abstain thereafter. Before the employment statistics, they expected for 2025 a first drop in May, potentially followed by a second reduction before the end of the year.

On the financial markets, bond yields rose following the publication of the American employment statistics. Although the increase subsequently moderated, it nevertheless dragged down the dollar and put pressure on the stock markets.

Shortly before 4:00 p.m. GMT, the rate on 30-year US government bonds rose almost two points to 4.9384% after briefly exceeding the 5% mark for the first time since October 2023.

The yield on 10-year Treasuries jumped by almost seven basis points, to 4.745% after a peak during the session at 4.79%. In Europe, the yield on the ten-year German Bund, the benchmark for the euro zone, gained almost three basis points to 2.564%.

(Written by Lucia Mutikani, Pauline Foret and Blandine Hénault)

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