Inflationary NFP Wage Growth Could Challenge Fed Goals, Impacting Yields, Gold

Wages and the Market: Jobs Report to Shape Yields, Gold, and Stocks

Friday’s December jobs report is set to influence key market movements across Treasury yields, gold, and equities. Traders anticipate volatility as the data will likely influence Federal Reserve policy decisions. Wage growth remains the focal point, with implications for inflation, interest rates, and overall market sentiment.

Market Forecast: Expect Volatility Across Asset Classes

Stronger-than-expected wage growth could fuel inflation fears, pushing Treasury yields higher as markets price in prolonged rate hikes. Rising yields may pressure equities, particularly growth stocks, by increasing borrowing costs. Conversely, gold could benefit as a safe-haven asset if the report signals slowing job growth or heightens market uncertainty. Analysts expect payroll gains between 120,000 and 160,000, which, if weaker than anticipated, might also temper yields and support gold prices.

Wage Growth: The Fed’s Key Metric

The Federal Reserve is closely watching average hourly earnings, forecast to rise 0.3% in December and 4% year-over-year. Sustained wage increases above 3.5% annually could complicate the Fed’s inflation-fighting efforts, keeping monetary policy tighter for longer. This would likely exert downward pressure on equities and bolster yields, especially on shorter-dated Treasury securities. If wages align with expectations, the Fed may maintain its cautious approach, balancing inflation risks with economic growth.

Sector Trends Highlight Job Market Divergences

Sector-specific trends may offer deeper insights into the labor market. Manufacturing is expected to rebound modestly following labor strikes, while construction continues to show resilience despite elevated interest rates. However, Wall Street estimates for total payrolls vary, with firms like Goldman Sachs and Citigroup projecting lower gains of 125,000 to 120,000. Seasonal factors, such as holiday hiring, could skew December’s data, complicating broader interpretations of labor market strength.

Labor Market Resilience Amid Slower Growth

Despite signs of easing, the labor market remains stable. November’s job openings exceeded 8 million, layoffs held steady, and worker mobility, as measured by the quits rate, declined. While smaller firms are moderating hiring plans, survey data suggests steady, albeit slower, headcount growth in 2025. This resilience supports the Fed’s aim to achieve balanced inflation without a sharp economic downturn.

Short-Term Market Sentiment: Cautiously Bearish

Volatility is likely to dominate in the short term as traders interpret the report. Higher-than-expected wage growth could weigh on equities and drive Treasury yields higher, reflecting expectations of prolonged monetary tightening.

On the other hand, weaker job creation could favor gold as a safe haven and ease upward pressure on yields. Traders should anticipate cautious positioning, with opportunities tied to the report’s specific wage and employment figures.

More Information in our Economic Calendar.