Over 500,000 US jobs created in January but what does ‘awe upside surprise’ mean for Fed’s rate hike cycle?

More than half-a-million new jobs were created in the US this month, leading to renewed fears the Federal Reserve could hike up interest rates when it meets next month.

Statistics from the US Department of Labor howed jobs rose by 517,000 in January, while the unemployment rate changed marginally, at 3.4 percent.

This week the Federal Reserve hiked rates 25 basis points in a decision viewed by analysts as a climb down to the lowest interest rate hike in nearly a year .

It was also taken as a sign the world’s most influential central bank is nearing the end of its aggressive campaign to tame a historic inflation surge.

The latest rise in employment figures may force a U-turn however, with a rise in the number of people working likely to stoke inflation fears.

Of the rise in jobs there were gains in leisure and hospitality, professional and business services, and health care.

Leisure and hospitality added 128,000 jobs with food services and drinking places having added 99,000.

Samuel Fuller, director of Financial Markets Online, said the figures were “a shock and awe upside surprise.”

“Awe at the huge scale of the headline jobs number, and shock that it came in at nearly treble the consensus forecast.”

“Adding in the upwardly revised numbers for November and December, the US economy has created well over a million jobs in the past three months alone.”

He added that “perhaps the best news of all is that the spike in job creation is not being accompanied by runaway wage growth. Americans’ average hourly earnings have risen by a modest 4.4 per cent over the past 12 months and consumer inflation is cooling.”

“The effect on the Dollar of today’s surprise data has been nothing short of electric, with the Greenback soaring against the Euro and Pound and heading into the weekend on a tear.

“Following on from Wednesday’s dovish interest rate rise by the Fed, market optimism about America’s prospects is growing. On this evidence, it is past the worst and back in the fast lane to growth.”

This comes after Fed chair Jerome Powell and the rest of the Federal Open Market Committee (FOMC) backed a 25 basis points increase, taking the global financial system’s anchor rate to a range of 4.5 per cent and 4.75 per cent.

It is the weakest rise since the Fed’s first hike in this current tightening cycle back in March 2022. 

The announcement was expected to reinforce market expectations that gathered pace ahead of the FOMC meeting that the Fed is approaching the end of this current rate hike cycle.

However, in the FOMC statement accompanying the decision, the Fed did say “ongoing increases” to the federal funds will be necessary to return inflation, running at 6.5 per cent, its lowest level in a year.