Yields mixed as soft spots in jobs data spur Fed pivot hopes

NEW YORK: Treasury yields were mixed on Friday after government data showed US payrolls increasing more than expected last month, but a slower pace of job growth spurred market hopes the Federal Reserve could downsize its interest rate hikes in December.

The Labor Department’s employment report also showed moderating wage increases, a decrease in household employment and a drop in the prime age employment-to-population ratio, renewing speculation of a long-awaited “pivot” in Fed policy.

“At the end of the day the pace of job growth for the month has been decelerating and the employment rate did go up,” said Russell Price, chief economist at Ameriprise Financial Services Inc in Troy, Michigan.

“But the unemployment rate going up was primarily because there are fewer people in the labor force and the pace of job growth per month is still quite strong,” he said.

Regardless of some mitigating data, Price said “the Fed is going to have to go higher than people currently expect, even though those expectations have risen.”

Rates pared gains after initially shooting higher as wage moderation suggested inflation pressures may ease and allow the US central bank to raise rates by 50 basis points next month, or less than the Fed’s last four hikes of 75 bps each.

The timing of an eventual Fed pivot remains uncertain. The market has repeatedly bet the past six months on a policy reversal only to be disappointed by stubbornly high inflation and tight labor market conditions, said Steven Ricchiuto, US chief economist at Mizuho Securities USA.

“Household employment hasn’t been rising all year and there is a bit of divergence between what’s happening in the household sector and what’s happening in the payrolls sector,” he added.

Boston Fed President Susan Collins said on Friday there was a good chance the pace of future increases could be smaller than those delivered in recent months, but Richmond Fed President Thomas Barkin said rates could continue rising for longer and to a higher end point than previously expected.