Although the United States’ December jobs data surpassed expectations, analysts are warning that the metrics could signal a potential spike in inflation.

For the last month of 2024, the U.S. added 256,000 jobs, 92,000 more than expected, while unemployment fell to 4.1%.

This unexpectedly strong labor market is raising fears that inflation, described as “breaking out like a meme coin,” will spiral further out of control, forcing the Federal Reserve to maintain higher interest rates for longer, according to financial markets commentary platform The Kobeissi Letter.

In a post on X on January 10, the platform noted that the strong job growth contrasts with the Fed’s earlier assumption that the labor market was weakening, which had been the basis for September 2024’s rate cuts. 

Instead, accelerating job gains and rising inflation have undermined any case for future rate cuts, leading to a sharp selloff in stocks and rising bond yields. As a reminder, the institution aims to push inflation below the 2% target.

The comparison of inflation to a meme coin points to the volatile rise in consumer inflation expectations, which have surged to their highest levels since 1980. 

Global inflation on the horizon 

Indeed, economist Peter Schiff believes that high inflation will likely hit the global economy. In an X post on January 11, Schiff stated that despite rate cuts by the Federal Reserve and the European Central Bank, inflationary pressures remain unchecked, raising fears of a historic global inflation crisis.

Over the past eight months, as the Fed & ECB have been cutting interest rates and assuring the public that #inflation was headed toward 2%, the CRB commodity index soared 33% (38% in euros), closing at a 14-year high. We’re on the cusp of the greatest global inflation in history.

— Peter Schiff (@PeterSchiff) January 10, 2025

Notably, consumer inflation expectations skyrocketed after the September rate cuts, setting off alarm bells across markets. 

“Consumer inflation expectations are breaking out like a meme coin. In fact, after the Fed’s 50 bps rate cut, consumer inflation expectations rose to their highest level since 1980! Just about everyone other than the Fed is now expecting higher inflation,” the platform stated. 

This trend is reflected in gold’s sharp uptrend alongside the U.S. dollar, an unusual alignment. The precious metal, typically a hedge against inflation, is gaining traction as uncertainty rises, while the strengthening dollar suggests that markets are bracing for a prolonged period of higher rates.

Based on this scenario, The Kobeissi Letter declared that the anticipated “Fed pivot” is “officially dead.” This is backed by the fact that markets are pricing in just a 44% chance of any rate cuts through mid-2025, a shift from previous forecasts that predicted up to five rate cuts this year. 

The 10-year Treasury yield, a key indicator of long-term borrowing costs, has also surged to nearly 5%. This emerges when the Fed issued a hawkish outlook for 2025.

What next for stocks 

Regarding what to expect, the strong jobs report and inflationary pressures give the Fed little room to maneuver. 

If inflation figures remain stubbornly high, it could erode consumer purchasing power and corporate profit margins, adding further pressure to stocks already reeling from the prospect of prolonged high rates. 

It’s worth noting that when the Fed signaled fewer rate cuts moving into 2025, most equities reacted negatively, extending late 2024 losses into the new year.

Featured image via Shutterstock