The unexpected level of growth provides the Federal Reserve with sufficient cushion to continue raising interest rates to combat inflation.
Employers added 528,000 jobs in the United States last month, which was more than double the number projected.
The government figures indicated that the labor market has continued to defy rising prices and consecutive quarters of GDP contraction, which have stoked worries of a recession.
It was the nineteenth consecutive month of payroll growth, which will strengthen the case for the Federal Reserve to maintain its aggressive policy tightening.
Similar to the Bank of England, the Fed has been increasing interest rates to return inflation to its 2 percent target. In June, the rate reached 9.1%.
After raising the rate by three-quarters of a percentage point last week, it is now more likely that the Federal Reserve will hike rates by a third 75 basis points at its September meeting.
This year, the central bank has already raised interest rates by 2.25 percentage points.
The number of jobs increased from 398,000 in June, while the unemployment rate decreased to 3.5% from 3.6% in June.
Housing and retail, which are more vulnerable to interest rate increases, had reduced demand for labor, whereas airlines and restaurants struggled to find enough staff.
The average hourly wage climbed by 0.5% in July after gaining 0.4% in June, resulting in an annual increase of 5.2% from 5.1% in June.
Dollarization harms the pound.
The news also affected currency markets; the rush to the dollar caused the pound to lose about 1.5 cents.
Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, stated to Reuters, “What we have heard from various Fed governors this week about it being too early to pivot away from a tightening policy is certainly in line with the ‘this hot’ employment report.
“This provides the Fed with a justification to continue raising interest rates, which is what has the market on edge.”
“Expect some hardship ahead”
Hinesh Patel, portfolio manager at Quilter Investors, stated, “Every unemployment rate has either decreased or remained at post-pandemic levels as the economy continues to grow despite impending economic difficulties.
“As the United States continues to recover from COVID, private payrolls are currently greater than they were before the pandemic.
“The Federal Reserve will interpret this as a message that they must continue aggressively hiking interest rates to bring inflation under control and alleviate some of the froth in this tight labor market.
“However, the most recent earnings season indicates upcoming challenges. Walmart’s recent results, an excellent barometer of consumer confidence and the status of the US economy, have begun to sound the alarm.
“The United States is a solid market, and most of the pessimism is generated by statistical anomalies and the scourge of inflation. As we have seen all year, the future orientation of the Federal Reserve will ultimately depend on the path of inflation.
