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The U.S. economy added 142,000 jobs in August and the unemployment rate fell to 4.2%, allowing the Federal Reserve to continue cutting interest rates this month.
The Bureau of Labor Statistics' data released Friday came in below economists' expectations of 165,000 new jobs and above a downwardly revised forecast of 89,000 jobs added in July.
The August employment report is one of the most important economic releases before Federal ReserveThe next tariff-setting meeting will begin on September 17.
Last month, the Bureau of Labor Statistics reported that employment in July grew by only 114,000which has pushed unemployment to 4.3% and raised fears that the world's largest economy is heading towards a recession.
U.S. stock futures remained under pressure and government bonds rose after the release of jobs data.
Contracts tracking the benchmark S&P 500 index fell 0.3% in the minutes after the data was released, while contracts tracking the tech-heavy Nasdaq 100 index fell 0.4%, reversing earlier losses.
The policy-sensitive two-year Treasury yield fell 0.08 percentage point to 3.67%, while the 10-year yield fell 0.06 percentage point to 3.68%. Yields are falling as prices rise.
Futures prices indicate traders are still betting on at least one quarter-point interest rate cut in September following Friday's labor market data.
Fed officials are closely monitoring the labor market for signs of weakness in an attempt to nudge inflation return to the central bank's 2 percent target, which is based on the annual change in the personal consumption expenditure index. The “core” PCE measure, which excludes volatile food and energy prices and is closely watched by policymakers, was 2.6% in Augustcompared to a peak of more than 5 percent in 2022.
That progress in fighting inflation and signs of a cooling labor market have allowed the Fed to cut interest rates for the first time since 2020, when the pandemic hit the economy. Since July last year, the central bank has kept rates at 5.25% to 5%, the highest in 23 years.
Before Friday's jobs report, most traders in futures markets believed the Fed would cut rates by a quarter point this month, gradually cutting them this year and beyond to a “neutral” level that neither stimulates nor suppresses growth.
Fed Chairman Jay Powell said last month that the central bank “neither seeks nor welcomes further weakening of the labor market” and will do “everything we can to support a strong labor market as we continue to move toward price stability.”
His comments come amid signs that the labor market is no longer the source of inflation it was during the labor shortage that pushed up wages. Companies are now cutting job openings rather than laying off workers, and job openings are at their lowest level since 2021, according to data released This week.