October Jobs Report: US Job Growth Remains Strong

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Stocks rose on Friday, ending a four-day losing streak that came as investors reassessed expectations about the path of interest rates and what the Federal Reserve may do next.

The S&P 500 rose 1.4 percent higher after seesawing between gains and losses after new data on the labor market showed the Fed’s efforts to cool the economy might be gaining traction even as hiring remained robust. Even after Friday’s gain, the index was 3.3 percent lower for the week.

Investors came into the week buoyed by broadly positive corporate earnings releases and a sense that the global push toward higher interest rates, aimed at slowing the economy and easing inflation, might be about to ease off. But on Wednesday Jerome H. Powell, the Fed chair, dashed hopes that the central bank would soon end its campaign of raising interest rates, which is aimed at slowing the economy and easing inflation.

Against that backdrop, the latest jobs data, which showed the pace of hiring slowing last month to 261,000 new positions, offered some reprieve. The unemployment rate rose to 3.7 percent in October, still very low but above the rate expected before the numbers were released.

Lower unemployment is typically welcomed by investors as a sign of economic strength, but as the Fed attempts to tame stubbornly high inflation, a robust labor market highlights the need to slow the economy further by raising interest rates, which in turn increases costs for companies. That’s why somewhat higher unemployment, which may be an early sign that the Fed’s rate increases are taking hold, could be seen as a welcome development by investors at this particular moment.

“The jobs report was stronger than we would like, but probably tame enough to keep the Fed on track to be able slow the pace of rate increases in the coming months,” said Matt Peron, the director of research at Janus Henderson Investors.

Investors have become increasingly worried that as interest rates rise quickly, the financial markets are becoming strained, and that the likelihood the United States could slip into recession has increased.

The Fed is in the midst of a communication challenge, said Tiffany Wilding, an economist at the asset manager Pimco. Investors complained of whiplash after a seemingly cautious policy statement on Wednesday — which was interpreted as setting the stage for the Fed to slow its pace of rate increases — was followed by more hawkish comments at a news conference by Mr. Powell, who said that it was “very premature” to talk about pausing rate increases.

The central bank faces a difficult path as it tries to determine when it can safely let up on rate increases, which take time to work through the economy, without signaling that its determination to reduce inflation has waned. The latter could prompt investors to start expecting rate cuts, pushing up asset prices and undoing the Fed’s work prematurely.

“They realize that monetary policy works through lags. They realize they have done a lot in a short period of time. And they realize they haven’t seen much effect,” Ms. Wilding said. “They have a conundrum.”

Yields on US government bonds held steady, after big jumps in recent days on expectations of aggressive Fed rate increases. Short-term rates remain above long-term rates, producing a so-called inverted yield curve, which many on Wall Street consider a reliable indicator of impending economic stress.

The numbers on Friday about hiring in October could help set the direction for markets heading into next week, when investors will receive fresh data on inflation in the US economy. However, analysts cautioned that with over a month until the Fed’s next meeting, and with more data scheduled to be released between now and then, it’s unlikely the October jobs report will have too much bearing on what the Fed will do in December.

Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said on CNBC after the report on Friday that the Fed had its foot on the brakes of the economy and could “act a little more deliberatively,” with a slower but longer and “ potentially a higher” road ahead for rate increases.

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