Jobs Gains Surge, Troubling News for the Federal Reserve.

Federal Reserve officials are likely to cast a wary eye on September jobs data, which showed that employers both hired at a rapid clip last month and had added more workers in the previous two months than had been reported earlier.

Employers added 336,000 jobs last month, sharply more than the 170,000 economists had predicted. Fed officials have been keeping a careful watch on the labor market as they try to assess how much more they need to raise interest rates to bring inflation under control, and how long borrowing costs should stay high.

Central bankers had been encouraged as job growth had cooled without collapsing in recent months.

“Although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers,” Jerome H. Powell, the Fed chair, said during a news conference in mid-September. Fed officials “expect the rebalancing in the labor market to continue, easing upward pressures on inflation.”

But the September jobs report offered little evidence that hiring was continuing to cool — instead suggesting that companies continued to snap up workers. That made Wall Street investors wary that the Fed might raise interest rates further, something that would weigh on corporate profits and stock valuations.

Central bankers have already lifted rates to a range of 5.25 to 5.5 percent, and have suggested that they could make one more rate move in 2023 before holding borrowing costs at a high level throughout 2024.

The S&P 500 slipped following the release of the strong jobs report, and the yield on the 10-year Treasury bond, which is a benchmark interest rate around the world, rose to more than 4.8 percent.

Still, there were some more optimistic signs, from the Fed’s perspective.

Policymakers are closely watching wage growth, and pay gains continued to moderate. Wages climbed 0.2 percent from the previous month, a muted pace. Average hourly earnings were up 4.2 percent from a year earlier, the mildest increase since June 2021.

Fed officials have continued to predict that unemployment will probably rise slightly as the economy slows, to about 4.1 percent, which would still be low by historical standards. Unemployment stood at 3.8 percent as of September, up slightly from 3.4 percent earlier this year.

The Fed’s next meeting is Oct. 31 to Nov. 1, so the policymakers will not receive another employment report before they need to make their next rate decision. But some economists pointed out that although the job market remained strong in September, developments could cool it down in October.

Among them, longer term interest rates in financial markets have climbed sharply in recent weeks, which will make it more expensive for consumers to finance a car or house purchase and for businesses to expand.

“In isolation, economic data would probably justify the Fed hiking at the November meeting — what gives me pause for thought is the fact that long-term yields have increased significantly,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “They will have to weigh how much the recent rise in yields and tightening in financial conditions has done the job for them.”

That could combine with other mounting challenges — resuming student loan payments, uncertainty as Washington fights over the federal budget, strikes at car manufacturers and in other industries, and dwindling consumer savings piles — to cool the economy this autumn.

“The auto union workers strike will weigh on job growth in October while easing consumer spending and more cautious business activity will lead to slower labor demand,” Gregory Daco, the chief economist at EY-Parthenon, wrote in a note following the report.

Central bankers will receive a fresh Consumer Price Index inflation reading on Oct. 12, ahead of their next gathering. If they decide to leave interest rates unchanged at the upcoming meeting, they will have one final opportunity to adjust them this year when they meet on Dec. 12-13.

Joe Rennison contributed reporting.