A stronger-than-expected US labor market report for May calmed fears of an economic slowdown but unsettled financial markets, with Treasury yields surging, the dollar climbing and tech stocks pointing to steep losses.
Nonfarm payrolls rose by 172,000 last month, nearly double economists’ forecasts of 88,000, while private-sector employers added 120,000 jobs, also beating expectations
The unemployment rate held steady at 4.3% and wage growth came in at 0.3% month-on-month and 3.4% year-on-year, in line with forecasts. Market reaction was swift. The two-year Treasury yield rose nearly 10 basis points, the dollar led the G10 currency space and US equities pointed sharply lower, with tech bearing the brunt of the selloff.
Analysts said the report effectively neutralizes the case for near-term Fed rate cuts while stopping short of triggering expectations for hikes. The probability of a Fed increase by year-end remains below 40%, with steady wage growth suggesting the hiring rebound has not fed through to broader inflationary pressure. The report nonetheless hands incoming Fed Chair Kevin Warsh a charged backdrop ahead of his first press conference following the June 17 FOMC meeting.