US employment numbers are bad news for markets and the Fed

“Something is likely to break.” as Friday’s U.S. jobs report pushes the Federal Reserve to keep interest rates higher for longer, he said Mohamed El-Erianchief economic advisor at Allianz SE and Bloomberg Opinion columnist.

The data is “good news for the economy right now.””El-Erian said on Bloomberg Television, but it is “bad news for the markets and for the Federal Reserve.” The central bank is not going to welcome this report. In the long term, this may also end up being bad news for the economy.”

Friday’s payroll numbers are “consistent” with its projection of a possible recession, El-Erian said. “This is an economy that has become accustomed to ridiculously low interest rates and liquidity injections. Regime change is happening very quickly.”

Nonfarm payrolls data showed that The US added more than 330,000 jobs in September, compared to the 170,000 estimated by economists. The overall figure for August was revised upwards, while the average increase in hourly earnings was 0.2% last month, the same as in August.

A resilient labor market has raised expectations of a rate hike by the Federal Reserve at its November policy meeting and led traders to postpone projections of future rate cuts as the U.S. slows. . On Friday, The swap market was pricing in a postponement of the first 25 basis point rate cut until September 2024while the previous projection placed it in July.

Expectations for the next Federal Reserve meeting

“This puts an increase for November back on the table”said El-Erian. “Markets are having to internalize not only that rates will stay high for a long time, but that they will stay higher for longer. “When you fall behind right at the beginning of an inflationary cycle, the price is paid when you reach the last mile.”

Following the jobs data, five- to 30-year Treasury yields rose more than 15 basis points intraday, and 10- and 30-year rates returned to their highest levels since 2007, before to cut part of the progress. A Bloomberg dollar gauge rallied after the data was released.

Translated by Paulina Steffens.

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