Market backs off on hopes for interest rate cuts following strong jobs report

May's surprising pace of job growth and wage rise added to the conviction that the Federal Reserve will stay on hold through this summer and possibly beyond.

The Bureau of Labor Statistics reported Friday that nonfarm payrolls increased by 272,000 for the month, considerably higher than the Wall Street consensus of 190,000 and well above April's comparatively muted gain of 165,000. In addition, average hourly earnings rose 4.1% over the past 12 months, more than expected.

Beyond signaling a still-vibrant labor market, the data at the very least adds to the narrative that the Fed doesn't have to rush to lower interest rates.

As inflation runs above the central bank's 2% target, there's scant evidence that higher rates are endangering broad metrics of economic growth.

"I've been a little flummoxed at the parlor game of when will the Fed start cutting," said Liz Ann Sonders, chief investment strategist at Charles Schwab. "I've been more in the camp that neither of the components of the Fed's dual mandate are pointing to the need to start cutting, and higher-for-longer means nothing could happen this year."

The Fed's "dual mandate" entails maintaining both full employment and stable prices.

Even with the unemployment rate rising to 4% in May, the labor market appears vibrant.

However, on the other side of the mandate, inflation is still running well above the Fed's target. Most gauges have prices rising annually at about a 3% rate, down significantly from the peaks of mid-2022 but still running hot.

Following the jobs numbers, futures traders cut bets on rate cuts.

Pricing in fed funds futures pointed to almost no chance of a reduction at either the Federal Open Market Committee's meeting next week or on July 30-31. From there,