The likelihood of a December Federal Reserve rate hike surged to 77% following a stronger-than-expected jobs report. On Friday, November 6, the CME FedWatch tool showed a sharp increase in the probability of a 25-basis-point hike, up from 67% a week earlier. The shift came after October employment data revealed a gain of 165,000 jobs, significantly exceeding forecasts.
Despite the market's muted reaction, with the SPDR S&P 500 ETF Trust (SPY) rising just 0.32% and the iShares 20+ Year Treasury Bond ETF (TLT) barely moving, the two-year Treasury yield climbed to 4.51%, reflecting revised expectations for near-term Fed policy. San Francisco Fed President Mary Daly emphasized the need for further tightening to combat persistent inflation, though she did not specify timing or size.
The October jobs report showed broad hiring gains across sectors, including professional services, healthcare, and manufacturing. Average hourly earnings rose 0.4% to $38.00, up 3.1% year-over-year, a key factor for the Fed's inflation focus. The unemployment rate held steady at 4.1%.
Upcoming data, including the October consumer price index (CPI) on November 10 and the November jobs report on December 4, will shape the Fed's December 8-9 meeting. A hot CPI reading could intensify pressure on SPY, which remains vulnerable due to its heavy technology weighting. TLT offers limited protection, as long-duration bonds are sensitive to rate hikes.