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Market Update

Rates reverse downward trend on strong wage data

December 5, 2022
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    Kevin Jones

    Treasury Advisory

    Corporates | Kennett Square, PA


A surprisingly strong non-farm payrolls report indicated higher wage growth than expected, along with continued job growth. This led to a sharp increase in interest rates following a month of declines during November as the market reprices its expectations for Fed rate hikes.

Strong jobs report surprises markets

The much-anticipated November non-farm payrolls report came out Friday indicating 263,000 jobs created in November, despite expectation of a more modest 200,000. The growth represents a labor market that is continuing to exhibit healthy growth, with net positive jobs added every month since December 2020. Perhaps more surprising in Friday’s report was the average hourly earnings report, which came out at 5.1% versus the expected 4.6%. This figure — representing wage growth since one year ago — suggested to the market that despite earlier signs of inflation beginning to cool, wage growth continued unabated, which in theory would spur more inflation and subsequent rate hikes.

As such, interest rates reversed the downward trajectory, which had been tracked during most of November. Short-term rates (e.g. 2-3 year rates) immediately jumped 15 basis points on the news, though rates markets cooled somewhat over the course of the day. Markets currently expect a peak Fed Funds target rate of 4.9%, the peak hitting in June of next year. This implies a 50-bps hike in December and more gradual hikes factored into the following FOMC meetings. Fed Chair Powell spoke at a Brookings Institution event on Thursday, which was read as a somewhat neutral speech where Powell referenced a likely slowing in the pace of hikes, a dynamic that has already been priced into the market.

Other economic data show mixed signals while the dollar weakens

Other data released during the week showed mixed signals for the U.S. economy; preliminary Q3 U.S. GDP data came in at 2.9% quarter-over-quarter growth, beating expectations of 2.7%. Meanwhile, jobs openings data (JOLTS) showed a decrease in open positions in October relative to the prior month, falling from 10.7 million to 10.3 million, notably in contrast to the labor market data described above.

Meanwhile, the USD continued a weakening trend over the past week, having weakened consistently since early November. Notably, EUR-USD crested over the 1.05 level, and GBP-USD ended the week north of 1.22. Investors seem to be eager to take on risk, with capital flows shifting from the safer dollar-denominated assets to foreign ones; this all coming against the geopolitical landscape of zero-COVID policy protests in China, an averted rail strike in the U.S., and the ongoing aftermath of the FTX bankruptcy on the crypto market.

With market volatility continuing unabated, companies with imminent hedging transactions should be judicious with market timing around known events, but the environment of unpredictability underscores the importance of policy-driven hedging strategies.

(Related insight: Download our new quantitative benchmark report, "The state of financial risk management.")

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About the author

  • Kevin Jones

    Treasury Advisory

    Corporates | Kennett Square, PA

    Kevin Jones serves Chatham’s corporate clients in interest rate and foreign currency hedging advisory. Kevin’s expertise spans risk quantification and analysis, hedging strategy development, market dynamics, and trade execution.


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit