Jobs report shows the Fed is not done raising interest rates as market prices out a cut

Bloomberg News/LandovFed Chairman Jerome Powell, pictured with Fed Vice Chairman Richard Clarida,will talk about the job data later Friday.

The surprisingly strong December jobs report indicates the Federal Reserve will keep raising interest rates, but the next move might not come for six months, economists said Friday.

"Taken in isolation, the [jobs] report would tend to increase the likelihood the Fed is not finished," said Julia Coronado, president of MacroPolicy Perspectives.

The economy added 312,000 jobs in December, far above economists' forecasts of a 182,000 gain.

Read: December job report shows biggest increase in hiring in three years

The strong gain in payrolls will quiet the market talk that the next move by the Fed would be to cut rates, said Scott Brown, chief economist at Raymond James & Associates.

In the wake of the report, investors lowered the odds of a rate cut this year below the 50% level seen earlier in the week, according to federal funds futures contracts on the Chicago Board of Trade.

See: Why Wall Street might be right that the next move from the Fed will be an interest-rate cut

Fed officials have penciled in two more rate hikes in 2019.

Brown said that before the report he was in the camp of no more moves but said after the report he expects a rate hike in June.

Economists agreed the report will make life even more difficult for Fed Chairman Jerome Powell.

On the one hand, the markets are reflecting fears of a deceleration in activity but more fundamental sources of information on the economy show the danger of an overheating economy remain present.

The Dow Jones Industrial Average DJIA, +3.29% has dropped 15% from its highs of October, when Powell proclaimed that interest rates were a "long way" from neutral.

This will be very difficult for Powell to reconcile, said Carl Tannenbaum, chief economist at Northern Trust in Chicago.

Coronado said that in the last few days Fed officials seemed to be setting the market up for a pause in March.

Dallas Fed President Robert Kaplan on Thursday signaled he would like the central bank to pause for a "couple" of quarters.

Don't miss: Fed should move to the sidelines, Kaplan says

And earlier Friday, Cleveland Fed President Loretta Mester, a more hawkish Fed official, didn't rule out the possibility of a pause.

Tannenbaum said he now thought the next hike would come in June and not at the March meeting.