US markets end lower after jobs report

U.S. stocks experienced a decline and yields on government bonds increased after the government disclosed that employers unexpectedly added 162,000 jobs in August. This news may raise the likelihood of the U.S. central bank raising interest rates later in the month. The S&P 500 dropped 0.4 percent to 7,718.60, while the Dow Jones Industrial Average fell 0.5 percent to 53,414.25, and the Nasdaq declined 0.3 percent to 26,506.99.

Market participants anticipate the Federal Reserve to raise interest rates before the year concludes to combat inflation, which has been rising due to surging oil prices amid the U.S.-Iranian conflict and remains significantly higher than the 3 percent threshold. The Federal Reserve aims to bring inflation down to a 2 percent target.

The unexpected increase in hiring last month could provide policymakers with more flexibility to raise the Fed's short-term interest rate at their upcoming policy meeting in less than two weeks. Analysts note that while a rate hike is not guaranteed, today's jobs report hints at its possibility. The Labor Department reported that hiring in August surpassed expectations, with 65,000 additional jobs created.

Revisions to earlier months also proved positive, adding 55,000 jobs to June and July. The unemployment rate remained steady at 4.1 percent. This robust jobs market could complicate the Fed's challenge of supporting job growth while curbing inflation. Increasing interest rates can help to temper inflation, but it can also hinder economic growth by raising borrowing costs for consumers and businesses.

The probability of a September rate hike surged to 60.4 percent on Friday, up from 49.4 percent the previous day and 57 percent a week earlier, according to CME FedWatch. Jeffrey Roach, chief economist for LPL Financial, stated that a rate hike on September 16 appears increasingly probable, given the strength of the payroll report.

Interestingly, a rate hike might generate less market volatility than a meeting where policymakers decide to maintain the status quo. The government will release August's inflation figures on September 11, just before the Fed's policy-making committee convenes for their meeting on September 16. The closely watched consumer price index, which tracks consumer costs, is expected to indicate that inflation rose by 3.4 percent in August, matching the July figure.

Inflation has been above the 3 percent mark for most of the year. Fed Chair Kevin Warsh stated last week at the Fed's annual economic symposium in Jackson Hole, Wyoming, that inflation has not shown enough improvement and that the central bank may need to take "more action," suggesting a potential rate increase at the upcoming meeting.

Federal Reserve Governor Christopher Waller indicated on Thursday that if new data next week reveals cooling inflation, he "would be inclined" to keep the Fed's benchmark interest rate steady. Conversely, if the data indicates higher inflation, he might consider raising rates. U.S. government bond yields, which had softened in recent days, rose as the bond market considered the implications of the jobs report.

The yield on the 10-year Treasury, which affects mortgage rates, climbed to 4.78 percent from 4.77 percent late on Thursday. U.S. stock markets will be closed on Monday for the Labor Day holiday.