U.S. job growth accelerated again in May, defying expectations for a slowdown, even as the unemployment rate rose to the highest level in more than two years.

Employers added 272,000 jobs in May, the Labor Department said in its monthly payroll report released Friday, easily topping the 185,000 gain forecast by LSEG economists. But the unemployment rate unexpectedly inched higher to 4% against expectations that it would hold steady at 3.9%. It marked the highest level for the jobless rate since January 2022.

The U.S. economy added far more jobs than expected in May, countering fears of a slowdown in the labor market and likely reducing the Federal Reserve’s impetus to lower interest rates.

Nonfarm payrolls expanded by 272,000 for the month, up from 165,000 in April and well ahead of the Dow Jones consensus estimate for 190,000, the Labor Department’s Bureau of Labor Statistics reported Friday.

Higher interest rates were supposed to bring a lot of pain for Americans. So far that hasn't happened.

Why it matters: The Federal Reserve left interest rates unchanged Wednesday, keeping rates higher than originally anticipated, but in his afternoon news conference Fed chair Jay Powell made it clear he's ready to pivot in the event the pain makes an appearance.

The intrigue: When the Fed started hiking rates in 2022, some progressives feared that higher interest rates would eventually drive up unemployment, causing a lot of pain.

The Federal Reserve on Wednesday held interest rates steady for the sixth straight time after a string of disappointing inflation readings dimmed the odds of cuts later this year.

The widely expected decision – which left interest rates unchanged at a range of 5.25% to 5.5%, the highest level in 23 years – comes amid signs that progress on inflation is stalling, or even starting to reverse.

In their post-meeting statement, policymakers left the door open to rate cuts but stressed they need "greater confidence" inflation is coming down before easing policy.

Wednesday’s Federal Reserve policy decision was fairly boring for investors — officials kept interest rates the same, just as they have since July 2023.

But some savvy traders are excited about another key decision. The Fed announced that it will significantly curtail its quantitative tightening (QT) program — that’s the selling off of its assets to decrease money supply and increase interest rates — beginning in June.

US Treasury yields fell on the news. Yields on the 10-year and 2-year both dropped by .05 percentage points.

The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.

In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5%. The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.