162,000 August jobs—far above the 65,000 forecast—pushed traders to price a 60.4% chance of a Fed rate hike on Sept. 16, up from 49.4% a day earlier.
Wall Street sold off on that shift: the S&P 500 fell 0.4%, the Dow 0.5% and the Nasdaq 0.3%, while the 2-year Treasury yield rose to 4.37% and the 10-year to 4.78%.
55,000 upward payroll revisions for June and July and a steady 4.1% unemployment rate suggested labor demand remains firm, giving policymakers more room to keep fighting inflation.
That inflation backdrop remains difficult as Brent crude settled at $96.28 and U.S. diesel hit a record $5.85 a gallon, with the Strait of Hormuz still effectively closed during the U.S.-Iran war.
August CPI data due Sept. 11 now looms as the last major test before the Fed meeting ends Sept. 16, with inflation expected to hold at 3.4%—still well above the 2% target.