US unemployment rate at 53-year low; pressure on Federal Reserve

The Federal Reserve is likely to deliver at least two more interest-rate hikes, taking the benchmark rate to above 5 per cent, before monetary policy will be sufficiently restrictive to bridle an unexpectedly strong labour market that is contributing to high inflation.

That was the read from traders of interest-rate futures on Friday after the US Labor Department reported employers added more than half a million jobs last month, far more than expected. Prices in those contracts fell sharply, and now reflect a better than even chance that the Fed will keep raising interest rates to the 5-5.25 per cent range by June, if not by May.

The Fed earlier this week increased the rate by a quarter-of-a-percentage-point to 4.5 -4.75 per cent, and said it expects to deliver “ongoing” increases. Financial markets though heard a more dovish message and had been betting there would be just one more rate hike in the offing, in March, before a pause.

This comes as US hiring surged in January and the jobless rate fell to a 53-year low, showcasing an unexpectedly hot labour market.

Nonfarm payrolls increased 517,000 last month after an upwardly revised 260,000 gain in December, a Labor Department report showed on Friday. The unemployment rate dropped to 3.4 per cent, the lowest since May 1969 and average hourly earnings grew at steady clip. 

The figure beat all estimates in a Bloomberg survey of economists, which called for a 188,000 gain in payrolls and for the unemployment rate to rise to 3.6 per cent.

Treasury yields surged while the S&P 500 index futures tumbled and the dollar rose.