The US labour market has roared back to life, painting a picture of resilience and representing a dramatic turnaround from October's poor figures following the hurricane. With 227,000 new jobs created, far surpassing October's revised 36,000, this headline number paints a picture of an economy still running hot, defying predictions of a slowdown and challenging the narrative of an impending recession.

However, the persistence of wage growth, holding steady at 4% annually, presents a double-edged sword for policymakers. As while it supports consumer spending and economic growth in the short term, it also risks entrenching inflationary expectations, making the Fed's job of bringing inflation back to its 2% target more challenging. Furthermore, the slight uptick in the unemployment rate to 4.2%, coupled with a drop in the participation rate to 62.5%, adds complexity to the labour market picture. Consequently, these figures suggest that despite robust headline job creation, there may be underlying structural challenges in the workforce. 

The Federal Reserve now faces a delicate balancing act, as on the one hand, the strong job market provides a buffer against recession risks, however on the other, it may necessitate a more prolonged period of restrictive monetary policy than currently anticipated, to prevent inflation from reigniting. This may necessitate a moderation in rate cut expectations from the market, which presently expect a further 25bps cut in December.

In equity markets, the prospect of delayed rate cuts may temper investor enthusiasm typically associated with strong job growth, with rate-sensitive sectors facing headwinds as investors factor in a potentially extended period of elevated borrowing costs. As we move into 2025, the key question becomes whether this job market strength is sustainable or merely a final flourish before an inevitable cooldown, with the answer having significant implications for monetary policy trajectory.