May US jobs surge raises Fed hike expectations

A stronger-than-expected U.S. jobs report for May has dramatically shifted the outlook for Federal Reserve policy, extinguishing hopes for near-term interest rate cuts and increasing the likelihood of future hikes as the central bank confronts persistent inflation.

The U.S. economy added 172,000 jobs in May, roughly double the 85,000 forecast by economists, according to data released Friday, June 5, by the Bureau of Labor Statistics. The unemployment rate held steady at 4.3% for a third consecutive month. The report, which also included upward revisions adding 93,000 jobs to the prior two months, confirmed the labor market's resilience after a period of weakness last year.

The data triggered an immediate repricing across financial markets. Short-term Treasury yields, which are sensitive to Fed policy expectations, jumped, with the yield on the 2-year note rising 10 basis points to 4.15%. The U.S. dollar strengthened, while U.S. stock indices, particularly the technology-heavy Nasdaq, fell. The data also sparked a sharp selloff in cryptocurrencies, with Bitcoin dropping below $60,000.

The robust employment picture has forced investors and economists to recalibrate their...