New U.S. labor market data has bolstered market expectations that the Federal Reserve may move to cut interest rates as early as September.

The Labor Department reported on Friday that the U.S. unemployment rate rose to 4.3 percent in August, up 0.1 percentage points from July and the highest level in nearly four years. 

Separate figures from payroll processor ADP showed that private sector employment increased by just 54,000 last month, far below market forecasts of 68,000 and sharply lower than the revised 106,000 in July.

The weaker-than-expected data signaled a cooling labor market, triggering a sell-off on Wall Street on Friday. All three major U.S. stock indexes closed lower, while the dollar index and Treasury yields fell sharply. Investors, concerned about slowing economic momentum, drove gold futures higher.

According to the CME FedWatch tool, markets are now pricing in an increasing probability that the Fed will cut rates by at least 25 basis points at its September policy meeting, with some traders not ruling out a 50-basis-point move. Prediction platform Kalshi also forecasted that the Fed will cut rates by at least 25 basis points.

Bank of America said the jobs report would likely shift the Fed's focus from inflation to labor market conditions. The bank expects quarter-point cuts in both September and December, while warning that a deeper slowdown could force additional easing in October and potentially larger rate reductions in 2026.

The uptick in unemployment has also sparked political criticism. Representative Don Beyer of Virginia posted on X that "the August jobs report confirms Trump's policies are betraying American working families." He said, "Inflation is heating up, prices and unemployment are both rising and job growth is weakening sharply. All thanks to Trump's tariffs."