U.S. job growth fared better than expected in April amid banking turmoil and a decelerating economy, increasing chances that the Federal Reserve will hold interest rates higher for longer as it fights to bring inflation under control.

Non-farm payrolls rose by 253,000 last month, according to the U.S. Department of Labor on Friday. Economists polled by Reuters had forecast payrolls would rise by 180,000.

The Labor Department's closely watched employment report also showed the unemployment rate falling back to a 53-year low of 3.4 percent.

Though data for February and March were revised sharply lower, the labor market is slowing only marginally. It suggested there was no impact yet on the economy from tighter credit conditions, which together with the Fed's punitive rate hikes have raised the risk of a recession.

The stronger-than-expected findings poured cold water on financial market expectations that the Fed would start cutting interest rates this year.

"Interest rates are going to have to remain elevated," said Sean Snaith, director of the University of Central Florida's Institute for Economic Forecasting. "This kind of strength in the labor market makes it more difficult for the Fed to continue its reduction in inflation."

The U.S. central bank raised its benchmark overnight interest rate by another 25 basis points to a range of five to 5.25 percent on Wednesday, and signaled it may pause its fastest monetary policy tightening campaign since the 1980s, though it kept a hawkish bias. The Fed has hiked its policy rate by 500 basis points since March 2022.

Following the release of the jobs report, stocks on Wall Street were trading higher. The dollar fell against a basket of currencies and U.S. Treasury yields rose.

Keith Wade, chief economist at Schroders, predicted that the U.S. economy will plunge into a recession in the second half of the year, with unemployment rate surging to a 4.5 percent high, in an interview with Yicai.

By the end of 2024, he added, U.S unemployment rate could increase further to 5.5 percent, which would cool inflation down to the Fed's two percent target.

(With input from Reuters)