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A sharp AI driven stock selloff on Thursday briefly weakened expectations for a December rate hike. The October jobs report reversed that shift one day later, giving traders a powerful reason to put higher rates back on the table.

Chip stocks suffered their second worst day since 1994 on Thursday. Polymarket’s estimated chance of a quarter point hike at the Fed’s Dec. 9 meeting fell to about 64%, down from 81% the previous day.

That retreat did not last. Employers added 165,000 jobs in October, more than double the forecast, and the probability of a December increase climbed back to about 78%.

The result was welcome news for people seeking work, but it offered little comfort to investors hoping the Fed might rescue a bruised stock market. A resilient labor market gives policymakers less reason to ease their stance.

Strength appeared across the report. The unemployment rate declined, job totals for the previous two months were revised higher, and paychecks grew faster than economists had expected.

Interactive Brokers chief strategist Steve Sosnick said the report effectively removed employment from the Fed’s immediate list of concerns. “With a number like this, you can put aside labor as a concern,” Sosnick said on Yahoo Finance’s “The 8:30.”

That leaves inflation as the other half of the Fed’s job. The report suggested the labor market is still expanding well beyond the level that some economists believe is necessary to keep it stable.

RSM chief economist Joe Brusuelas estimates that the economy now needs only about 35,000 new jobs each month to remain steady. Baby boomers are retiring and immigration has slowed, lowering the bar for what counts as healthy monthly employment growth.

Brusuelas told Yahoo Finance’s “Market Hang” that he expects “job growth at more than three times what's necessary to stabilize the labor market.” October’s 165,000 gain came in comfortably above that estimated threshold.

A cooler stock market could also become part of the inflation remedy. Wealthy households have recently supplied a significant share of consumer spending, supported by stock market gains through a pattern economists describe as the wealth effect.

If equity prices surrender some of those gains, spending by affluent households could cool as well. That possibility would connect higher rates, weaker stock prices, and slower spending among consumers who have benefited most from rising markets.

KPMG chief economist Diane Swonk described that channel on “The 8:30.” She said, “To the extent that higher rates also take a little steam off of equity prices, that can cool inflation by the most affluent households.”

Politico’s Victoria Guida offered a less forceful alternative during Yahoo Finance’s “Market Hang.” She recommended slowing the AI build out through regulation, “rather than having the Fed take a huge sledgehammer and have to raise rates a lot in order to cool some of this down.”

The hiring boom has not reached every corner of the economy. Technology and media employment, which the government classifies within the information sector, peaked in November 2022, the same month ChatGPT launched, and has fallen about 12% since then.

Healthcare and social assistance have carried much of the recent employment growth. Those areas produced about 6 of every 10 jobs added during the past year, while technology and banking have experienced what Brusuelas called “a little bit less labor growth.”

Brusuelas said AI has not yet moved the needle for the economy as a whole. He also rejected the bleakest warnings coming from Silicon Valley, saying, “We're not going to have a jobs apocalypse.”

The next jobs report is scheduled for Dec. 4, five days before the Fed’s meeting. Another strong result would make a rate hike difficult to avoid, while a weak report could allow the AI stock selloff to regain control of market expectations.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.