Key facts
- US employers added 172,000 jobs in May, exceeding economist expectations.
- The unemployment rate remained unchanged at 4.3%.
- Market odds for a Federal Reserve rate hike in December increased to 68.4%.
- US Treasury yields rose, with the 10-year yield breaking above 4.5%.
- The dollar index increased by 0.2% to 99.60.
- Stocks plunged following the jobs report.
The U.S. labor market showed unexpected strength in May, with employers adding 172,000 jobs, significantly surpassing economist forecasts. This robust performance has shifted market sentiment, elevating the probability of a Federal Reserve rate hike in December to approximately 68.4%, a notable increase from around 50% before the report. The unemployment rate remained steady at 4.3%. In reaction, U.S. stock markets experienced a sharp decline, with the S&P 500 falling and the Nasdaq 100 dropping considerably. Treasury yields also increased, with the 10-year yield surpassing the 4.5% threshold, indicating expectations of sustained higher interest rates. The dollar index rose 0.2% to 99.60. The strong jobs data, combined with recent inflation acceleration largely driven by energy prices, has diminished expectations for interest rate cuts this year, shifting focus towards potential rate hikes. Analysts suggest that while the job market is positive for the economy, it removes the primary justification for the Fed to loosen monetary policy. Diane Swonk, KPMG Chief Economist, noted that improvements in the labor market and persistent service sector inflation are driving hawkish sentiment among Federal Reserve officials. Bond market pricing now reflects expectations of a 25 basis point rate hike in 2026. Frances Donald, Chief Economist at RBC, highlighted that inflation is beginning to outpace wage growth, signaling potential policy shifts. The strong jobs report led traders to fully price in a Federal Reserve interest-rate hike by the end of this year, with Treasuries tumbling.