U.S. added 57,000 jobs in June; Fed outlook muddied

• Key insight: The report showed the weakest labor market growth since February. 
• Expert quote: "In our business, we don't want to over-determine things, but if there were people in households or the business sector, in the financial markets, who thought that this central bank was going to be comfortable with an inflation objective above 2% well, I guess they'd be disappointed." — Federal Reserve Chairman Kevin Warsh. 
• Forward Look: The Fed will receive additional economic indicators, including readings on inflation, before its next policy meeting later this month. 

The U.S. labor market continued to grow in June, albeit at a slower pace than recent months, adding just 57,000 jobs. The unemployment rate ticked down to 4.2%.

The reading was the fourth straight month of gains tracked by the Bureau of Labor Statistics, but it follows surprisingly large upticks of 172,000 in May, 179,000 in April and 214,000 in March. 

However, figures for April and May were both revised down significantly in Thursday's report, falling to 148,000 and 129,000, respectively. 

Ahead of Thursday's report, the consensus projection among analysts was that the economy had added 100,000 jobs last month, according to the analytics firm FactSet. 

The unemployment rate, which fell by 0.1 percentage point, preserves the prevailing view that the U.S. economy is strong and employment is roughly full. But the disappointing gain raises questions about the strength of the economy going forward. 

Before this reading, market participants had been pricing in a rate cut or two by the Federal Reserve before the end of the year — something roughly half the members of the central bank's monetary policy committee predicted during their meeting last month. 

The June job numbers follow the latest report on inflation, which showed headline prices growing at roughly twice the Fed's target rate of 2% in May. 

Members of the Federal Open Market Committee have, in recent months, become more concerned with the inflation side of the Fed's dual mandate, suggesting that it should receive roughly equal attention as its obligations to maintain maximum employment. 

Earlier this year, the FOMC was trending toward lowering its benchmark interest rate. President Donald Trump's nomination of Kevin Warsh — a proponent of easier monetary policy in recent years — appeared to make a rate cut before the year's end all the more likely. 

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Instead, a surge in inflation stemming from the war in Iran and related oil shock scuttled those plans. With on-again-off-again ceasefire frameworks in place between the U.S. and Iran, oil has begun flowing more freely from the Strait of Hormuz, allowing commodity prices to fall and raising hopes that the inflation moment may be passing. Still, rapid investments in artificial intelligence, related technologies and infrastructure have kept the U.S. economy growing, while also raising concerns about a further surge in near-term price growth. 

Against this backdrop, the FOMC was split at last month's meeting about whether raising interest rates this year would be necessary or not. Warsh, who could have tipped the group's bias one way or another, opted not to participate in the forecasting exercise. The chair has also been reluctant to provide any economic insight that could be perceived as forward guidance on the path of policy. 

During a panel hosted by the European Central Bank on Wednesday, Warsh said the U.S. labor market appears to be "steady." He declined to say whether that view aligns with the market's perception that the Fed is shifting back toward an inflation fighting stance. Still, he reaffirmed his commitment to bring inflation back to 2%. 

"Expectations of inflation over the first four weeks of this period, they've come down. Inflation risks have come down again in our business, we don't want to over-determine things, but if there were people in household or the business sector in the financial markets who thought that this central bank was going to be comfortable with an inflation objective above 2% well, I guess they'd be disappointed," Warsh said.