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The US economy added 353,000 jobs in January, almost twice as many as forecast, in “astonishing” numbers that led investors to scale back their expectations of a rate cut in March.

Economists had expected jobs to gain 180,000 last month, according to an LSEG survey.

Tom Simons, US economist at Jefferies, described the figures as “stunning figures” that left him “almost speechless”.

Analysts said the numbers lend greater weight to the Federal Reserve’s insistence that it may be too early to cut interest rates, despite Republican presidential candidate Donald Trump’s attacks on Fed Chairman Jay Powell, analysts said.

After the data was released, futures traders reduced their bets that the Fed would cut interest rates in March. Expectations of a cut fell to about 20 percent, compared to 37 percent before the report.

“Unless there is an exogenous shock, this rules out the possibility of a rate cut in March,” Simons said of the labor market data. “A cut in March would be unthinkable.”

Traders also reduced their bets on a rate cut in May and estimated the probability at around 88 percent. Before the report, a cut in May was fully priced in.

Stephen Stanley, chief U.S. economist at Santander, said that while January’s 353,000 jobs figure was “seasonally exaggerated,” the data was “strong across the board.”

Treasury yields jumped as markets moved away from expectations of imminent interest rate cuts.

The two-year Treasury yield, which moves with interest rate expectations, built on earlier gains and rose 0.20 percentage points to 4.40 percent intraday.

Powell earlier this week tried to cool speculation about a rate cut in March, warning that this was not the central bank’s “base case scenario.”

“Powell killed a March cut. The number of jobs has killed it,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.

Trump highlighted the politically explosive decision facing the Federal Reserve and accused Powell of trying to cut interest rates to boost President Joe Biden’s election chances.

“I think he will probably do something to help the Democrats,” the Republican front-runner said, adding that he would not renominate the Fed chair.

The S&P 500 rose 0.9 percent on Friday as a rise in technology stocks helped the market weather changing interest rate expectations.

Meta shares rose 20 percent after the tech giant’s fourth-quarter revenue and outlook beat forecasts and unexpectedly declared its first quarterly dividend. Amazon rose 7.7 percent.

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The Bureau of Labor Statistics’ jobs report on Friday also showed that the average hourly wage of U.S. workers rose 0.6 percent to $34.55 – up 4.5 percent over the past 12 months.

Revised numbers in the report suggest the U.S. added 333,000 jobs in December, up from 216,000 at an initial estimate. The number for November was also increased by a more moderate 9,000 to 182,000.

Some economists suggested that January’s dramatic job gains – a phenomenon that also occurred last year – may have been exaggerated by seasonal hiring.

The seasonal adjustment method “has not kept pace with patterns in the real economy,” said Eric Winograd, senior fixed-income economist at AllianceBernstein.

So far, the Fed has been encouraged by signs of a slowdown in the labor market.

Citing this week’s Employment Cost Index numbers that suggested a slowdown in wage increases, Powell said Wednesday that the U.S. is “still a good labor market for wages and for finding work, but…” [was] to get back into balance and that’s what we want to see.”

Source : www.ft.com

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