It's a hot summer with a labor market to match. The question is no longer "is this a recession," but rather: "Is the job market too hot for the Fed's comfort?"

Driving the news: The jobs slowdown economists have been expecting isn't materializing. Rather, the economy added 528,000 jobs in July — the strongest print since February, and double what economists expected.

• The unemployment rate ticked down to 3.5%, its pre-pandemic level and the lowest in nearly a half century.

Why it matters: There are a ton of headlines about buzzy companies laying off workers. But the numbers show that most businesses have an insatiable demand for workers. That's just not something you see during a recession.

• That's excellent news for job-seekers, and gives the Biden administration some badly needed good news to trumpet.
• "Economies in recession do not produce 528,000 jobs on a given month and have 3.5% unemployment rates," said Joe Brusuelas, chief economist of RSM US, in a note. "Claims that the economy fell into recession or is in recession fall flat and should be politely set aside."

Yes, but: The Fed's interest rate hikes are intended to slow down the economy in hopes of bringing down inflation. The new numbers suggest that, at least with regard to the labor market, it isn't working so far.

• As Harvard economist Jason Furman put it, the numbers are "uncomfortably hot."

Between the lines: Beyond the headline figures, Fed officials are likely to see reasons to worry about inflation pressures remaining high for the foreseeable future.

• Another worrying sign is on the labor supply front, which is moving in the wrong direction. The number of adults not in the labor force rose by 239,000, and the participation rate ticked down. At 62.1%, it remains 1.3 percent points below its pre-pandemic level.
• In the past year, wages have jumped 5.2%. Wage gains accelerated in July, however, to an even faster 5.8% annual rate.

There's a lot of data due out between now and the Fed's mid-September meeting. Yet what we've seen so far — robust job creation, a shrinking labor force, and rising wages — would imply that another 0.75 percentage point rate hike will be very much on the table.

Meanwhile, the markets already see tighter money on the way, swinging in ways that anticipated the likely Fed reaction to the new numbers, essentially doing Chair Jerome Powell's work for him.

• The two-year Treasury yield spiked around 0.2 percentage points this morning to 3.2%, a huge move. Longer-term rates surged as well, with the 10-year yield up 0.15 percentage point to 2.83%.
• Those higher rates will filter through to rates on mortgages, auto loans, and other forms of credit — meaning the good jobs numbers will create an immediate effect in the economy.

The bottom line: It's great news that jobs are plentiful, and nearly every American who wants to work is able to find it. But that implies there may be more pain to come in the form of higher rates.