The U.S. economy added 162,000 jobs in August, roughly three times what economists expected. The unemployment rate held steady at 4.1%, and the labor force participation rate ticked up to 61.6%, its first gain in 11 months.
The underemployment rate fell to 7.7%, the lowest since June 2025.
Despite the strong data, stocks did not celebrate. The S&P 500 slipped 0.5% on Friday, the Dow Jones Industrial Average fell 0.7%, and the Nasdaq Composite ended the week slightly higher. The S&P 500 finished the week flat overall.
The drop frustrated President Donald Trump, who posted on Truth Social calling the reaction “crazy” given what he described as great economic numbers.
The concern driving markets lower is inflation. A strong jobs report raises the chance the Federal Reserve will hike interest rates. Odds of a hike at the September 16 Federal Open Market Committee meeting climbed from 50% to 60% after the data dropped, according to the CME FedWatch tool.
Rate hike odds surge to 67%, back to post-Jackson Hole highs https://t.co/GuQcjPjeSR pic.twitter.com/CR2TXXnasq
— zerohedge (@zerohedge) September 4, 2026
All eyes are now on Wednesday’s consumer price index report. Economists expect an annual inflation rate of 3.4%. If the number comes in hotter, a rate hike is seen as near certain.
“We need inflation to cooperate, even more so after this report than we did before,” said Mike Dickson, head of research at Horizon.
Geopolitical stress is adding fuel to the inflation fire. Brent crude futures rose nearly 1.5% to $97.60 a barrel on Monday, the highest in seven weeks. Oil prices have surged around 35% since late February, with diesel hitting record highs last week.
Tensions in the Middle East are behind much of the move. U.S. forces struck three Iranian tankers, and Iran’s Islamic Revolutionary Guard Corps launched ballistic missiles at two U.S. Navy ships. Tehran said it plans to announce a restricted zone near the Strait of Hormuz.
Rising fuel costs are pushing central banks toward rate hikes globally. The European Central Bank is expected to raise rates to 2.75% on Thursday. Markets are pricing a 75% chance the Bank of Japan will hike rates at its September 18 meeting.
European stocks fell 0.3% Monday, while S&P 500 futures dipped 0.1% and Nasdaq futures edged up 0.3% in light U.S. holiday trading.
Political uncertainty in Europe added to the unease. The far-right AfD party won Saxony-Anhalt state elections in Germany, the first time a far-right party has led a German state since World War Two.
Lululemon Athletica was the week’s biggest corporate story. Its shares fell 18% after the company reported a 9% drop in same-store sales for the second quarter. Analysts pointed to a delayed CEO transition as part of the problem.
With earnings season over, markets will be driven by economic data and Fed signals until mid-October.
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