U.S. stocks fell and Treasury bond yields mostly rose Friday after the government reported that employers unexpectedly added 162,000 jobs last month.

The surprise increase in hiring could give the Federal Reserve leeway to raise its benchmark short-term interest rate to fight inflation when central bank policymakers meet later this month.

“Today’s jobs report does lean toward the Fed increasing rates," said Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group, noting, however, that a rate hike is "not a foregone conclusion.”

The S&P 500 fell 0.3%.. The Dow Jones Industrial Average was down 245 points, or 0.5%, as of 12:48 p.m. Eastern time. The Nasdaq composite fell 0.2%.

Gains in technology stocks helped limit declines in other sectors. Nvidia rose 1.4%, Advanced Micro Devices added 4.2%, Sandisk jumped 10.4% and Micron Technology gained 4.6% .

Lululemon Athletica sank 17.4% after the retailer reported quarterly revenue that fell short of analysts' estimates and lowered its fiscal full-year outlook again.

Markets were mixed in Europe and Asia.

U.S. government bond yields, which had eased the last couple of days, mostly rose.

The yield on the 10-year Treasury, which influences mortgage rates, slipped to 4.76% from 4.77% late Thursday. It has been rising steadily throughout the year and was as low as 4.20% at the beginning of 2026.

The yield on the 2-year Treasury, which closely tracks expectations for Federal Reserve moves on interest rates, rose to 4.36% from 4.34%. It remains significantly higher for the year, though, and was as low as 3.50% at the beginning of 2026.

Wall Street expects the central bank to raise interest rates before the year ends in an effort to cool inflation, which has been running hot due to rising oil prices amid the U.S. war with Iran and remains well above 3%. The Fed has a stated goal of cooling inflation to a target of 2%.

The Labor Department reported that hiring in August far exceeded the 65,000 forecasters had expected, according to a poll by FactSet. Labor Department revisions also looked good, adding 55,000 to June and July payrolls. The unemployment rate held steady at 4.1%.

The stronger jobs market could make matters more complicated for the Fed, which has to balance supporting job growth with fighting inflation. Raising interest rates can help tame inflation by slowing economic growth.

“Given the strength of the payroll report, a rate hike on Sept. 16 appears increasingly likely,” according to Jeffrey Roach, chief economist for LPL Financial. “Ironically, a rate hike may generate less market volatility than another meeting in which policymakers choose to stand pat.”

Expectations for a rate hike in September increased to 60.4% on Friday following the release of the jobs report, up from 49.4% Thursday and from 57% a week ago, according to CME FedWatch.

The government will release August inflation figures Sept. 11, shortly before the Fed’s policymaking committee’s next meeting, which ends on Sept. 16. The closely watched consumer price index, or CPI, which measures costs for consumers, is expected to show that inflation rose last month at a 3.4% rate, the same as in July. Inflation has held stubbornly above 3% for most of the year.

“With the August CPI report now on deck, the question is whether the combined impact of stronger-than-expected hiring and a stiff inflation tailwind will push policymakers to the tipping point of raising rates later this month," said Jim Baird, chief investment officer with Plante Moran Financial Advisors.

Fed Chair Kevin Warsh said last week at the Fed's annual economic symposium in Jackson Hole, Wyoming, that inflation had not shown sufficient improvement and that the central bank might have "more work to do," a sign he is weighing a rate increase at the Fed's next meeting.

On Thursday, Federal Reserve governor Christopher Waller said that if new data next week shows inflation is cooling, he "would be inclined" to keep the Fed's benchmark interest rate unchanged. Should the data show hotter inflation, he would consider a rate hike.

Oil prices initially eased Friday, although they remain elevated following sharp increases earlier this week as the six-month long U.S. war with Iran intensified. Iran fired at Kuwait on Thursday in retaliation for U.S. bombardments earlier in the week. The Strait of Hormuz remains effectively closed.

The price of Brent crude, the international standard, fell 0.2% to $95.37 a barrel. Benchmark U.S. crude was down 0.6% to $90.72 a barrel. For the week, they are up 8.2% and 8.8%, respectively.

U.S. gasoline prices will be higher this weekend than they have ever been at this time of year, according to AAA.

Diesel hit an all-time high for any time of the year on Friday, soaring to an average of $5.85 a gallon. Because diesel is used for many freight and delivery networks, higher diesel prices mean higher transportation costs for a long list of everyday goods, a price shock that can impact prices for consumers.

U.S. stock markets will be closed Monday for the Labor Day holiday.

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