Traders now see a December interest rate rise from the US Federal Reserve as the likely outcome after a stronger-than-expected jobs report, with market pricing putting the chance of a quarter-point hike at nearly 80%.

The US economy added 165,000 jobs in October, according to the Bureau of Labor Statistics, more than twice what economists had expected. The unemployment rate edged down to 4.1%. The figures, released on Friday, landed a day after weekly jobless claims fell to a 57-year low and a week after a stronger-than-expected reading on economic growth.

Market expectations that the Fed will raise rates by at least 25 basis points at its December 8-9 meeting moved up to nearly 80% in the wake of the report, according to the CME FedWatch Tool, which turns traders' bets on interest rates into odds. That was up from about two-thirds the day before the data. The Fed last raised its main rate on September 16, to a range of 3.75% to 4.00%, and held it steady at its October 28 meeting.

Fed officials back the case for a rise

Comments from Federal Reserve officials have supported the case for a December move. New York Fed President John Williams said US economic growth has remained remarkably resilient in the face of successive shocks, but that inflation is still too high and it is essential to bring it back to 2%.

The dollar strengthened on the shift in expectations. The dollar index, which tracks the greenback against a basket of currencies of its major trading partners, last traded at 102.2 after notching its biggest single-day gain in five months on Friday.

The next test comes on Tuesday, when the US consumer price index for October is released at 8:30am Eastern Time. It is the last major inflation reading before the Fed's December meeting, and another hot number would further cement expectations of a hike. A further jobs report is due on December 4, days before policymakers meet.

Caution remains despite the shift

Not everyone is convinced the hike is a done deal. The Daily Upside notes that economists warn new market realities could still stop the Fed's rate-rising campaign, with continued falls in technology stocks and oil prices potentially removing the case for a further increase in early 2027.

Matthew Martin, senior US economist at Oxford Economics, wrote in a note last week that continued falls in tech stocks and oil prices could eliminate the prospect of an additional hike in early 2027. The warning comes after a bruising week for technology shares, in which concerns about chip demand and the profitability of artificial intelligence triggered heavy selling before Wall Street steadied on Friday.

For now, though, the jobs data has taken away the market's hope that the Fed will stand pat in December. With inflation still above target, a resilient labour market and officials sounding comfortable with tighter policy, traders are betting that the central bank will move next month, with Tuesday's inflation figures the next hurdle for that view.