WASHINGTON, Feb 2 (Reuters) – The United States witnessed a significant acceleration in job growth in January, coupled with the most substantial wage increase in almost two years. These indicators reveal robustness in the labor market, potentially complicating the Federal Reserve’s plans to initiate interest rate cuts in May, as currently anticipated by financial markets.

Last month, nonfarm payrolls expanded by 353,000 jobs, with the unemployment rate standing at 3.7%. Additionally, revisions revealed that the economy added 126,000 more jobs in November and December than initially estimated. The positive job market dynamics have led to a reduction in expectations for a May rate cut.

Resilient demand and enhanced worker productivity are encouraging businesses to hire and retain more employees, possibly shielding the economy from a recession in 2023. Although labor market momentum has slightly slowed due to Federal Reserve interest rate hikes, job gains remain well above the level needed to accommodate population growth.

Annual benchmark revisions indicated that 266,000 fewer jobs were created in the 12 months through March 2023 than previously reported. However, the revised job gains are still robust enough to sustain the economy, particularly through strong consumer spending.

In terms of wages, average hourly earnings increased by 0.6% in January, marking the most substantial gain since March 2022. Over the 12 months through January, wages increased by 4.5%, surpassing the pre-pandemic average. This wage growth exceeds the range policymakers consider consistent with the U.S. central bank’s 2% inflation target, suggesting that an early rate cut in March may be unlikely.

Financial markets have adjusted their expectations for a rate cut in April and May, reducing the odds to around 60% from about 90% before the latest data. Federal Reserve Chair Jerome Powell emphasized the economy’s strength, indicating that interest rates had peaked and would decrease in the coming months.

Despite the recent high-profile layoffs by some companies, economists remain optimistic, highlighting the focus on worker productivity and cooling labor costs. The broad-based gains across various sectors, including professional services, healthcare, retail trade, manufacturing, and government, further underscore the positive trends in the U.S. labor market.