December jobs report has Wall Street starting to talk about rate hikes in 2025

A hot December jobs report has many strategists confident that the Federal Reserve will hold off on further interest rate cuts for now.

You are viewing: December jobs report has Wall Street starting to talk about rate hikes in 2025

And some on Wall Street think this report may have even cracked the door open for the Fed to consider rate hikes in 2025.

“Our base case has the Fed on an extended hold,” Bank of America Securities US economist Aditya Bhave wrote in a note to clients on Friday. “But we think the risks for the next move are skewed toward a hike.”

Bhave cautioned that the bar for the Fed to hike is high, with Fed officials still describing the current level of rates as restrictive. But should the Fed’s preferred inflation gauge — the Personal Consumption Expenditures metric, excluding volatile categories like food and energy — reaccelerate or inflation expectations move higher, a hike could be on the table.

The latest reading of “core” PCE showed prices increased 2.8% in November, higher than the 2.7% seen in October. There is also concern among economists that incoming President Donald Trump’s policies could push inflation higher or, at minimum, hold back inflation’s progress in slowing to the Fed’s 2% goal.

A fresh reading from the University of Michigan showed consumers’ year-ahead inflation expectations jumped to 3.3% in January from 2.8% the month prior. Meanwhile, long-run inflation expectations also hit 3.3% in January, the highest level for the metric since 2008.

“After a very strong Dec jobs report, we think the cutting cycle is over,” Bhave wrote. “Inflation is stuck above target, with upside risks.”

See more : 5 Worst Things You Can Do for Your Finances in 2025

Read more: How the Fed rate cut affects your bank accounts, loans, credit cards, and investments

Data from the Bureau of Labor Statistics released Friday showed 256,000 new jobs were created in December, far more than the 165,000 expected by economists and higher than the 212,000 seen in November. Meanwhile, the unemployment rate fell from to 4.1% from 4.2% the month prior.

The cycle high for the unemployment rate had initially been 4.3% in July, a number that sparked investor concerns and contributed to a stock market sell-off in August. But that number was revised down 4.2% in Friday’s release, showing that while the labor market cooled throughout 2024, it isn’t deteriorating at a concerning pace.

“From the Fed’s perspective, the unemployment rate started the year in ‘too hot’ territory at 3.7%, but it has cooled to ‘just right’ at 4.1% in December,” Wells Fargo senior economist Sarah House wrote in a note to clients on Friday.

Story Continues