NFP React: Wages and Unemployment suggest March is a go for the Fed, Yields rise

A big deceleration in hiring will do little to change the Fed’s hawkish course. Today’s nonfarm payroll report required a good look at all the numbers and not just the headline miss.  Wall Street is focusing on the robust prints with wages and the unemployment rate.  After the initial dust settled from the NFP report, expectations for a March Fed rate hike rose from around 74% to 80%.

The headline miss of only 199,000 jobs created in December is getting written off as many traders are focusing on the household survey that showed 651,000 found employment.  Self employment is also contributing some distortions when comparing the BLS report to the household poll.  The October report saw the 546,000 headline revised to 648,000.

The wage data stood out as both the monthly and year-over-year readings came in higher than expectations along with upwardly revised prior readings. Wages rose 0.6% (0.4% expected) in December and 4.7% (4.2% expected) in 2021.  The unemployment rate dropped from 4.2% to 3.9%, which is now less than half a percentage point from pre-COVID levels. The labor shortage problem is forcing employers to raise wages and with the unemployment rate improving to the best level since February 2020, the Fed can say the US is at maximum employment.


The labor market is still looking tight and that gave Treasury yields permission to edge on higher.  The 5-year Treasury yield tentatively tested the 1.50% for the first time since January 2020. The 10-year Treasury yield rose 2.7 basis points to 1.748%, while the 10-year real yield rose 3.8% to -0.7707%.

Treasury yields have a clear path higher as the Fed tries to get to the neutral rate and figure out how they will handle the balance sheet runoff.

Following the US payrolls reports, the dollar edged lower despite Treasury yields extending higher.  EUR/USD has been finding support around the 1.13 level and that might hold until next week.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya