Home / Markets / Stock Markets /  Wall Street tumbles as jobs growth cements rate hike bets; Nasdaq dips 3%

Wall Street's main indexes slumped on Friday as a solid job growth figure and a dip in unemployment rate last month pointed to a tight labor market, providing more room for the US Federal Reserve to keep raising interest rates aggressively to fight persistently high inflation.

The worry is that the economy will slow down so much it will enter a recession, putting people out of work and knocking down company profits.

The S&P 500 technology sector index fell more than 3%, leading declines among the 11 major sector indexes.

At 11:56 am ET, the Dow Jones Industrial Average was down 495.62 points, or 1.66%, at 29,431.32, the S&P 500 was down 82.39 points, or 2.20%, at 3,662.13, and the Nasdaq Composite was down 344.02 points, or 3.11%, at 10,729.30.

Treasury 10-year yields climbed, pushing toward a 10th straight week of increases – the longest winning run since 1984. The dollar rose.

Nonfarm payrolls increased 263,000 in September – the smallest monthly advance since April 2021 – after a 315,000 gain in August, a Labor Department report showed today. The unemployment rate unexpectedly dropped from 3.7% to 3.5%, matching a half-century low. Average hourly earnings rose firmly.

Fed's inflation fighters

The Fed is hoping that slower job growth would mean less pressure on employers to raise pay and pass those costs on to their customers through price increases — a recipe for high inflation. But September's hiring — slightly stronger than economists had expected — might not have slowed enough to satisfy the central bank's inflation fighters.

“A moderation in job and wage growth will be welcome developments for Fed officials,’’ Rubeela Farooqi, chief US economist at High Frequency Economics, wrote in a report. Still, she doesn’t expect the softer jobs and wage numbers to keep the Fed from raising its benchmark short-term rate by a sizable three-quarters of a point in November and by a half-point in December.

The public anxiety that has arisen over high prices and the prospect of a recession is carrying political consequences as US President Joe Biden’s Democratic Party struggles to maintain control of Congress in November’s midterm elections.

In its epic battle to rein in inflation, the Fed has raised its benchmark interest rate five times this year. It is aiming to slow economic growth enough to reduce annual price increases back toward its 2% target.

It has a long way to go. In August, one key measure of year-over-year inflation, the consumer price index, amounted to 8.3%. And for now, consumer spending — the primary driver of the U.S. economy — is showing resilience. In August, consumers spent a bit more than in July, a sign that the economy was holding up despite rising borrowing rates, violent swings in the stock market and inflated prices for food, rent and other essentials.

Federal Reserve Chair Jerome Powell has warned bluntly that the inflation fight will “bring some pain," notably in the form of layoffs and higher unemployment.

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