US job growth continued at a brisk pace in March, with the unemployment rate falling to a new two-year low of 3.6% and wages re-accelerating, positioning the Federal Reserve to raise interest rates by a hefty 50 basis points in May.

The Labor Department's closely watched employment report's survey of establishments showed that non-farm payrolls increased by 431,000 jobs last month.

Data for February was revised higher to show 750,000 jobs added instead of the previously reported 678,000.

Economists polled by Reuters had forecast payrolls increasing 490,000. Estimates ranged from as low as 200,000 to as high as 700,000.

The US unemployment rate dropped to 3.6%, the lowest since February 2020, from 3.8% in February.

The report underscored solid momentum in the economy as it confronts rising headwinds from inflation, tighter monetary policy as well as Russia's war against Ukraine, which is further straining global supply chains and adding to price pressures.

The Fed last month raised its policy interest rate by 25 basis points, the first hike in more than three years.

Policymakers have been ratcheting up their hawkish rhetoric, with Fed Chair Jerome Powell saying the Fed must move "expeditiously" to hike rates and possibly "more aggressively" to keep high inflation from becoming entrenched.

March's employment report and the consumer prices data on April 12 will be crucial to the Fed's rate decision at its May 3-4 policy meeting.

Demand for hiring is being driven by a sharp decline in Covid-19 infections, which has resulted in restrictions being rolled away across the country.

There is no sign yet that the Russia-Ukraine war, which has pushed gasoline prices above $4 per gallon, has impacted the labour market.

There were a near record 11.3 million job openings on the last day of February, government data showed earlier this week, which left the jobs-workers gap at 3% of the labour force and close to the post-war high of 3.2% in December.

With workers still scarce, average hourly earnings increased 0.4% after edging up 0.1% in February. That lifted the annual increase to 5.6% from 5.2% in February.