For seemingly the first time in months, today’s US jobs report had at least a little potential to influence the imminent Federal Reserve interest rate decision.

Amidst a dramatically flattening yield curve, fears that the US-China trade truce could fall apart following the arrest of a prominent Chinese businesswoman, and a sharp drop in the stock market, Fed Fund futures traders were pricing in “just” a 72% chance of an interest rate hike in two weeks’ time, according to the CME’s FedWatch tool.

Over the last few years, the Fed has used an informal threshold of about 70% discounted to feel comfortable raising rates. Conceivably, a truly abysmal jobs report could have taken the market-implied odds of a hike below that threshold and perhaps convinced the central bank to hold off on its long-telegraphed rate increase.

Despite the disappointment on today’s headline jobs figure though, it looks like that scenario is off the table. Overall, the BLS estimates that the US economy created 155k new jobs in November, below median estimates of 198k jobs. Adding (a minor) insult to injury, the previous two months’ jobs reports were revised down by 12k jobs. That said, with the unemployment rate dipping to a new half-century low (3.67%), it may be difficult for the economy to continue creating jobs a 200k+ monthly clip. In other words, headline growth in the mid-100ks is not necessarily a negative sign to the extent that it reflects a “full employment” jobs report.

In that vein, the average hourly earnings grew at 3.1% year-over-year, as expected. Like last month, this represents the highest rate of wage growth since 2009 and is the primary factor that should keep the Fed on track to raise interest rates another 25bps at its meeting later this month. According to the aforementioned CME FedWatch tool, the market is now pricing an 80% chance of such a move, comfortably above the Fed’s informal threshold.

Market Reaction

In the grand scheme, today’s jobs report has had a relatively small impact on markets. Perhaps the largest reaction has been in the US stock market, with major indices opening in modestly positive territory on the theory that the labor market is still showing growth but that the Fed may have to tap the brakes on interest rate increases heading into 2019.

Other markets have seen comparatively small moves, with the US dollar ticking down by 10-20 pips against its rivals (with the exception of the loonie, which has gained nearly 100 pips on the back of a stellar jobs report out of Canada). The benchmark 10-year US treasury is roughly flat on the day to yield 2.89% and oil is rallying nearly 4% on news of a 1.2M bpd cut by OPEC.