Strong jobs report rebukes recession fears but poses risk to inflation fight

Hiring in December far surpassed economist expectations and rebuked concerns of a recession in the coming months, according to data released by the U.S. Bureau of Labor Statistics on Friday.

The economy added 216,000 jobs last month while the unemployment rate held steady at 3.7%, a historically low figure, the data showed.

The resilient jobs market aligns with optimism among many observers that the U.S. could avert an economic downturn, achieving a "soft landing" in which price increases return to normal levels while the economy continues to grow.

The fresh data for December capped a robust performance in 2023, when the economy added a total of 2.7 million jobs.

"Another month, another very good jobs report," Mark Zandi, chief economist at Moody's Analytics, said in a post on X, formerly Twitter. "The economy continues to create lots of jobs."

However, the good economic news may pose a challenge for the Federal Reserve as it tries to cool the economy and slow price increases.

Inflation stands well below last summer's peak of over 9%, but remains more than a percentage point above the Federal Reserve's target rate of 2%.

The hiring in December, which accelerated from the previous month, signals an economy resistant to the cooldown sought by the Fed. In particular, policymakers closely watch the pace of wage growth, since a rise in worker pay could prompt businesses to offset the added costs by raising prices.

Wages increased 4.1% in December compared to a year ago, exceeding the inflation rate by a percentage point and defying downward pressure imposed by the Fed.

The blockbuster jobs report on Friday could delay the Fed's recently announced plans to cut interest rates in 2024, a landmark move that would begin to reverse a near-historic series of rate hikes.

"This report does not scream rate cuts," Olu Sonola, the head of U.S. regional economics at Fitch Ratings, told ABC News in a statement.

If the Fed maintains high interest rates for a prolonged period, the elevated borrowing costs could stifle business investment and consumer spending. Such an outcome could ultimately weigh on economic growth and corporate profits.

In early trading on Friday, however, investors appeared to shake off concern about the implications of the fresh data. The three major stock indexes inched higher after the report was released.

So far, the U.S. economy has defied fears of a slowdown induced by high interest rates. It grew at an annualized pace of 4.9% over three months ending in September, more than doubling growth in the previous quarter, a government report in October showed.

"December appropriately rounded out a year when payroll gains simply refused to slow, despite headwinds from higher interest rates," Aaron Terrazas, chief economist at job recruitment website Glassdoor, told ABC News in a statement.

In turn, according to some economists, the Fed risks a rebound of inflation if it cuts interest rates too quickly. An additional burst of economic activity for an already robust economy could hike demand and raise prices once again.

To be sure, some economists said the jobs report on Friday bolsters the possibility of a "soft landing," since the robust performance offers policymakers further latitude to slow the economy without tipping the U.S. into a recession.

"A soft landing with a normalizing labor market and decreasing inflation is increasingly likely," Ronald Temple, chief market strategist at financial firm Lazard, told ABC News in a statement.

Speaking at a press conference in Washington, D.C. last month, Fed Chair Jerome Powell urged caution about the outlook for the central bank's effort to cool the economy and slow price increases.

"Inflation has eased from its highs and this has come without the significant increase in unemployment. That's very good news," Powell said.

"But inflation is too high, ongoing progress in bringing it down is not assured, and the path is uncertain," he added.