Market Wire: Jobs Report Sends Rate Expectations Surging Higher

The US job creation engine absolutely crushed forecasts last month, putting the Federal Reserve on course toward another rate hike in two weeks. According to data released by the Bureau of Labor Statistics this morning, 339,000 jobs were created in May, up from a revised 294,000 in the prior month, defying a ongoing deterioration in lending conditions and economic activity levels. The unemployment rate fell to 3.7 percent from 3.4 percent in April, with the participation rate holding at 62.6 percent.

Average hourly earnings rose 4.3 percent year-over-year, slightly weaker than the 4.4 percent expected, and still far beyond levels that would suggest inflation risks are receding at a comfortable pace.

Ahead of the release, investors were positioned for a 175,000-job gain, with the unemployment rate seen moving up to 3.5 percent.

From what we can tell, no major forecaster came close to predicting today’s number, and there’s little question this will anchor monetary tightening expectations higher. The dollar is surging higher, equity futures are tumbling, and yields are rising as traders raise the odds on another rate hike at the Fed’s June meeting. Two-year Treasuries are yielding above 4.4 percent as we go to pixels, reversing some of the losses associated with the “skip” language delivered by policymakers earlier in the week.