US jobs growth rose at an unexpectedly rapid clip in October, defying expectations for a larger slowdown as the historically tight labour market again showed resilience in the face of the Federal Reserve’s aggressive efforts to curb demand.

The economy added 261,000 positions last month, according to data released by the Bureau of Labor Statistics on Friday, more than consensus forecasts of 200,000. The figure was down from an upwardly revised 315,000 in September and 292,000 in August.

On average this year, the economy has added 407,000 jobs each month, compared with a monthly increase of 562,000 in 2021.

Despite these gains, the unemployment rate ticked up to 3.7 per cent, just above its pre-pandemic low.

The red-hot labour market has long been a source of discomfort for the Fed as the US central bank seeks to restrain economic growth in order to bring decades-high inflation under control. Acute worker shortages have helped to drive up wages as employers seek to fill positions, helping to stoke inflation.

Fed chair Jay Powell described the labour market as “overheated” at a press conference on Wednesday following the central bank’s decision to lift the federal funds rate by 0.75 percentage points for the fourth time in a row. Citing recently released data that showed both labour costs steadying and job vacancies unexpectedly climbing, he warned that he did not “see the case for real softening yet”.

In response to the latest jobs report, which came just days before US midterm elections that will determine control of Congress, President Joe Biden celebrated the gains.

“We’re going to do what it takes to bring inflation down. But as long as I’m president, I’m not going to accept an argument that the problem is that too many Americans are finding good jobs,” he said.

Fuelling October’s jobs gain was a rise in employment across the healthcare industry, professional and technical services and manufacturing. The number of leisure and hospitality jobs also swelled by 35,000. Construction and retail were among the sectors to report no monthly increase in positions.

The share of Americans either employed or seeking a job — known as the labour force participation rate — again failed to improve in October, steadying at 62.2 per cent. Average hourly earnings rose 0.4 per cent, more than expected and an acceleration from September’s increase. The annual pace steadied at 4.7 per cent.

Powell on Wednesday cautioned that wages were “flattening out” at a level that is “well above” what would be consistent with inflation returning to the Fed’s 2 per cent target. Despite evidence that the economy is not cooling as rapidly as expected, the chair this week signalled the Fed would consider reducing the pace at which it is raising interest rates. That potential change could come either as soon as the December meeting or the one after that, given not only how far rates have risen this year but also the lagged effect of policy changes on the real economy.

Susan Collins, president of the Boston Fed, on Friday signalled her support for a slower pace of rate rises. “Smaller increments will often be appropriate as we work to determine how much tightening is needed to reach a level of the funds rate that is sufficiently restrictive”, she said.

Also on Friday, Thomas Barkin, president of the Richmond Fed, backed a slower pace of rises.

The potential course adjustment from the US central bank comes after it pushed the fed funds rate to a range of between 3.75 per cent and 4 per cent, a level that will more forcefully curb activity.

Powell made clear that a slower pace would not mean an easing up of the fight against inflation, however, he did warn that the policy rate would reach higher levels than expected. Following the latest jobs report, markets have now priced in the fed funds rate peaking above 5 per cent next year.

A higher so-called terminal rate further reduces the odds the Fed can avoid tipping the economy into a recession, economists warn, with the unemployment rate likely to rise above 5 per cent.

Bob Michele, head of fixed income, currencies and commodities at JPMorgan Asset Management, said the Fed’s “sole priority” for now was to bring inflation down, and that Powell on Wednesday had tried to “tell the market that they weren’t going to pivot or pause [because] they are still concerned about inflation”.

US government debt initially came under another bout of selling pressure on Friday, but reversed much of that move. The yield on the 10-year Treasury — a benchmark used to set borrowing costs for consumers, businesses and other governments across the globe — was flat at about 4.13 per cent. Yields rise when a bond’s price falls.

The S&P 500 was up 1.6 per cent in mid-morning trading.

Thomas Simons, an economist with Jefferies, said payroll growth and wages were not slowing quickly enough. “This keeps another 75 basis point hike on the table for the December [Fed] meeting, though obviously we have lots more data between now and then,” he said.