Strong October Jobs Report Pushes Fed December Hike Odds to 80% as Central Banks Signal More Tightening

U.S. payrolls surged by 165,000 in October, nearly triple the 59,000 consensus forecast, while the unemployment rate fell to 4.1%, delivering a jolt to market expectations for Federal Reserve policy. Fed funds futures moved to price an 80% probability of a 25-basis-point rate hike at the December meeting, up sharply from 67% before the data, with odds of a hold retreating to 22%.

The strong labor market reading reinforces the case made by former Richmond Fed research director John Weinberg, who told MNI that the Fed will likely raise rates twice more in coming months and then hold for an extended period to ensure inflation returns to its 2% target. BofA strategist Michael Hartnett separately flagged that his pivot rule calls for staying risk-off until rate hikes end, the 10-year Treasury yield falls below 4.5%, and oil drops below $80, while also recommending buying gold ahead of a projected $41.1 trillion debt ceiling confrontation in February.

The Bank of England also raised its policy rate by 25 basis points to 4% at its November 4 meeting, with the MPC voting 8-1 in favor of the move. Chief Economist Huw Pill described the hike as preemptive in character, saying it reflects concerns about inflationary pressures in the months ahead, but cautioned that rates are now close to neutral levels and that this is probably not going to be a repeat of the 2022 experience of multiple successive hikes. Pill said whether one additional hike follows will depend on data released over the next few weeks, and emphasized that the future rate path is not baked in.

Separately, Riksbank Governor Erik Thedeen told MNI he favors a gradual approach to further tightening rather than front-loading hikes after a 25-basis-point increase brought the Swedish policy rate to 2%.