The U.S. added 29,000 jobs in September, the Labor Department said Friday, missing expectations.

The unemployment rate grew to 4.2%, up slightly from the previous month. Economists had expected 4.1%.

What this means for the Fed

The Federal Reserve has shifted its focus from boosting the labor market to fighting inflation.

Last month, the Fed raised its benchmark short-term interest rate for the first time in three years, an attempt to tamp down on price growth that remains stubbornly above target. One reason behind the policy shift: The central bank decided that the job market was healthy and less in need of a stimulus.

"There's been a pretty wide-ranging set of data, including the labor markets, that the economy has strengthened," Fed Chairman Kevin Warsh said at a press conference in September.

The job market this year

Fewer large companies have been telegraphing job cuts. Layoff announcements in August hit the lowest level for that month since 2022, according to outplacement firm Challenger, Gray & Christmas. Because of a sharp drop in immigration, fewer new positions are needed to keep the unemployment rate stable.

Many companies are in "low-hire, low-fire" mode, which means they aren't eager to dump a bunch of employees, but they aren't bringing on new workers either.

The meltdown in bonds

Investors are paying attention to the jobs numbers amid a broad selloff in the bond market. Treasury yields hit the highest level in 24 years earlier this week before retreating, while mortgage rates have surged above 7%, sending many would-be home buyers to the sidelines.

What this means for the midterms

Friday's numbers mark the last jobs report before the midterm elections on Nov. 3. Surveys show that voters are feeling increasingly glum about the economy, which often hurts the party in power. Consumer sentiment is near historic lows, according to a University of Michigan survey. Meanwhile, a number of Americans say that jobs are hard to get.

The AI impact

Some economists worry about an impending artificial-intelligence job apocalypse, but so far there is no conclusive evidence that automation is killing lots of white-collar positions. Instead, massive spending on data centers has boosted the labor market.

Employers added more than 750,000 AI-related jobs such as data annotator and data-center worker in the U.S. between the beginning of 2023 until late September, according to estimates from LinkedIn. And that isn't counting construction jobs. Electricians and plumbers have seen their hours and income surge.

"There are clear signs of a positive spillover" from data-center spending into the job market, said Ruchir Sharma, U.S. economist at Nomura.