The US economy added 254,000 jobs in September, well above expectations

U.S. job gains surged in September, marking the largest increase in six months, and the unemployment rate dropped to 4.1%, indicating a strong economy that may not require significant interest rate cuts from the Federal Reserve for the rest of the year.

The Labor Department's report on Friday revealed that nonfarm payrolls rose more than expected, accompanied by solid wage growth. Additionally, the economy added 72,000 more jobs in July and August than previously estimated. This follows recent revisions to national economic data, which showed the U.S. economy is healthier than initially thought, with improvements in growth, income, savings, and corporate profits.

Fed Chair Jerome Powell acknowledged this stronger economic outlook earlier in the week, signaling that the Federal Open Market Committee (FOMC) isn’t in a rush to implement further large rate cuts, saying, "this is not a committee that feels like it is in a hurry to cut rates quickly."

"Today’s report underscores the resilience of the U.S. economy, dismissing fears of an imminent decline in labor market conditions," said Jonathan Millar, senior economist at Barclays. "We still expect a 25 basis points rate cut in November."

Nonfarm payrolls rose by 254,000 jobs in September, the highest since March, surpassing economists' expectations of 140,000 jobs. Estimates for job gains ranged from 70,000 to 220,000. The three-month average for job growth climbed to 186,000, up from 140,000 in August, and the percentage of industries reporting job increases rose to 57.6%, up from 51.8% in August.

This flow of robust data, including strong consumer spending, has prompted some economists to question whether the Fed acted too hastily in cutting rates by 50 basis points last month. Kyle Chapman, FX markets analyst at Ballinger Group, suggested, "If the Fed had known about the revisions to the July and August data earlier, they likely would have opted for a 25 basis points cut instead."

Following the report, the dollar rallied to a seven-week high, Wall Street stocks rose, and U.S. Treasury yields increased. Financial markets adjusted the likelihood of a 25 basis points rate cut in November to 95%, up from 71.5% before the report, with expectations for a larger 50 basis points cut largely disappearing.

The Fed had previously reduced its policy rate by 50 basis points in September, bringing it to a range of 4.75%-5.00%, its first cut since 2020, after hiking rates by 525 basis points in 2022 and 2023.