SAN FRANCISCO March 8 U.S. employers added more jobs than expected last month, boosting expectations the Federal Reserve may raise near-zero interest rates a bit sooner than expected.
But it will likely take several months of strong jobs data before the Fed is ready to declare victory on the employment outlook, analysts said, and somewhere between a year and two years longer than that before it will move to boost short-term borrowing rates.
"The surprising improvement in the health of the labor market does not necessarily mean the Fed will start to look at an exit from its asset buying program any time soon," Markit chief market economist Chris Williamson said. "A sustained run of stronger job creation than even the nice surprise seen in February is needed to generate a significant further reduction in the unemployment level."
U.S. employers added 236,000 jobs in February, a government report showed Friday, more than the 160,000 expected and beating even the most optimistic forecasts.
The jobless rate fell to 7.7 percent, its lowest since December 2008. The rate had been 7.9 percent.
The Fed has kept short-term interest rates near zero for more than four years, and has vowed to keep them there until the unemployment rate falls to at least 6.5 percent, as long as inflation stays under control.
Fed officials have repeatedly said they will look at more than just the unemployment rate to judge whether the outlook for the jobs market has improved substantially, and asset purchases are no longer needed.
Chicago Fed President Charles Evans, a chief architect of the Fed's easy money policy, has called for six months of jobs growth above 200,000 per month, as well as above-trend GDP growth, before he would support an end to the bond-buying program known as quantitative easing, or QE.
"It's a little too soon to say this means the end of QE," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Still, he said, it could add to expectations that the Fed may back down from bond-buying sooner than thought.
Most Fed officials have said they see a need for bond-buying well into 2013.
In response to the jobs report, short-term interest-rate futures fell as traders boosted bets that the Fed will first hike rates in December 2014, putting the likelihood at about 47 percent, up from 42 percent before the report.
Traders gave a January 2015 rate hike a 57 percent probability, up from 51 percent before the report, based on contracts traded at CME Group Inc's Chicago Board of Trade.
Ten-year Treasuries also fell sharply in price after the report, pushing the yield up to around 2.08 percent, its highest since April.
But the data released Friday were not universally strong. They showed the average length of unemployment increased to 36.9 weeks and the number of discouraged workers grew.
That data could temper optimism that the worst for the jobs market is over.
"It's not anything that goes to change perspectives, and particularly the Fed's perspective," said Ellen Zentner, senior U.S. economist at Nomura Securities in New York.
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