Quick overview

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U.S. markets were rattled by clear signs that the US labor market is cooling, leading to a decline in stocks and a rise in bonds as investors feared the Fed might need to act swiftly to prevent further weakness.

Investors rushed into Treasuries because of the sudden slowdown, raising concerns about a sharper economic downturn. Two-year yields dropped to their lowest level since 2022. This also caused the money markets to rebalance quickly, with expectations of nearly three Fed rate cuts in 2025.

The S&P 500 dipped after briefly hitting all-time highs amid concerns that the Fed is falling behind in preventing job losses, as inflation remains sticky.

Recent months have seen a slowdown in job growth and low job openings, impacting overall economic activity

August saw a 22,000 increase in nonfarm payrolls, and June recorded the first employment decline since 2020, based on revisions.

The unemployment rate rose slightly to 4.3 percent. Michael Feroli of JPMorgan Chase said the data should clear the way for the Fed to cut rates by 25 basis points this month, but added that “today’s news probably raises more questions about the growth outlook than about the Fed outlook.”

Fed Chair Jerome Powell and other policymakers had already indicated that the risks were shifting from inflation to unemployment, even before the latest jobs report, due to a significant slowdown in payroll growth over the summer. The Fed is scheduled to meet twice more in 2025, in October and December.