December’s jobs report just flipped the narrative on its head, delivering numbers so strong they’re now straight up crashing markets.
The US labor market smashed all expectations, with nonfarm payrolls surging by 256,000, leaving the Dow Jones consensus forecast of 155,000 in the dust. November wasn’t a slouch either, with a revised total of 212,000 jobs added.
The Bureau of Labor Statistics confirmed the December figures on Friday, also reporting a dip in the unemployment rate to 4.1%, down from the expected 4.2%.
Wall Street did not cheer. Stock futures tanked, and Treasury yields shot through the roof following the news. Why? A labor market this strong doesn’t just rewrite the playbook – it tears it apart.
The Federal Reserve’s hopes for an excuse to cut rates in 2025 is now buried under this mountain of job growth. Poor Bitcoin. Interest rate-cutting environments are always really good for it.
Wage growth slows while jobs surge
Wage inflation? Not so much. Average hourly earnings inched up by 0.3% in December, right in line with expectations. On a yearly basis, wages grew by 3.9%, just shy of forecasts. These numbers tell us that wages are cooling off as a source of inflationary pressure, giving the Fed some breathing room.
But let’s talk some more about that market reaction. See – the thing is, traders now expect the Fed to stay the course—or even hike rates—if inflation refuses to back down.
The Federal Reserve’s September 2024 so-called ‘pivot,’ where it slashed rates by 50 basis points, looks almost ridiculous in hindsight. Back then, the Fed argued that “job gains had slowed” and that inflation was easing toward its 2% goal.
Inflation expectations and bond market mayhem
Inflation expectations? Exploding like a meme coin. Consumer inflation outlooks have hit levels not seen since the 1980s. After the Fed’s 50-basis-point cut, inflation fears surged, pushing the narrative that rate cuts were premature.
Financial conditions are now so loose that 2020’s near-zero interest rates look tight by comparison. Markets are swimming in liquidity, which is adding fuel to the inflation fire.
This brings us to the bond market, which has been on its very own rollercoaster. Yields on US Treasuries climbed across the board after the report dropped. The 30-year bond yield hit 5% for the first time in over a year. The 10-year note? It’s sitting at its highest level since 2023. Even shorter-term bonds, like two- and seven-year notes, saw yields jump by more than 10 basis points.
Why does this matter? Rising yields mean that traders are adjusting their bets. The once-solid expectation of multiple Fed rate cuts in 2025 is evaporating. Markets now see a 44% chance that rates won’t budge through June 2025. Forget the “Fed pivot.” That dream is dead, folks.
Gold prices and the US dollar are also moving in lockstep, something that almost never happens. Typically, a rising dollar means falling gold, but inflation fears and economic uncertainty have turned gold into a safety net. And get this: the US Dollar Index (DXY) is now at its highest level in 26 months.
Meanwhile, Bitcoin seems comfortable with its correction under $100,000. We now expect Trump’s inauguration to be the next big catalyst, especially if he makes a crypto executive order as soon as possible.
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