Friday’s job report showed nonfarm payrolls increased 339,000 last month after an upwardly revised 294,000 advance in
April. The unemployment rate rose to 3.7%, the highest since October, while wage growth slowed.

“There is something in this report for everyone,” said Gregory Faranello, Head of US Rates Trading and Strategy for AmeriVet Securities. “The increased layoffs are beginning to flow through. We don’t believe this number changes the dynamic for a skip at this month’s Fed meeting when looking at the fine details.”

Some 25-basis points of tightening were fully priced in across the next two meetings for part of the trading session Friday. Around 9-basis points was priced in for June, indicating a less than one-in-two chance of any hike being at this month’s meeting. Traders in the rate derivatives market at one stage saw the Fed’s policy rate peak at more than 5.33% in July, compared with a current effective rate of 5.08%. Treasuries fell Friday, with shorter-dated securities leading the charge. The yield curve flattened, pushing the two-year rate 81-basis points above the 10-year, close to the deepest inversion since the March tumult in regional banks.

All eyes will now turn to the consumer-price inflation reading that comes June 13, the day before the Fed’s next policy
decision.

“My guess is that this will be consistent with a skip,” University of Chicago professor and former Fed Governor Randall Kroszner said on Bloomberg Television about the job report.

–With assistance from Liz Capo McCormick and Benjamin Purvis.