It’s not a great sign if you’re looking for a job, but Wall Street investors—and probably Jerome Powell—find the news heartening. It’s evidence that the Federal Reserve chair’s policies are working as intended. As George Mateyo, chief investment officer at Key Wealth, explained, the latest jobs report was “just what the Fed chair wanted.”

“Today’s employment report was weaker than expected, the first material ‘downside surprise’ in over two years. Yet the weakness was not so weak to suggest that the labor market is rolling over,” Mateyo told Fortune via email. “It was a slowdown that the Fed and many market participants have been wanting for some time.”

A hit to the stagflation narrative

Ever since the Fed began raising interest rates to tame inflation in March 2022, Powell and company have been hoping the labor market would cool, enabling inflation to return to their 2% target sustainably. But three hot inflation reports and signs of persistent wage pressures spooked investors in the first quarter, leading some to fear stagflation—the toxic economic combination of high inflation and low or no growth—could be on the menu. That meant the threat of “higher for longer” interest rates was ever present, weighing on markets.

But Powell rebuked stagflation fears at the Federal Open Market Committee (FOMC) press conference on Wednesday, saying that he doesn’t see the “stag” or the “-flation” in economic data that investors are worried about. And now, the latest jobs report has provided some strong evidence to back up that view.

Take wage growth as an example. One of the keys to the stagnation theory is the idea that persistent wage growth will prevent inflation from falling back to the Fed’s 2% target, which, in turn, could force the central bank to hold interest rates higher for longer, weighing on economic growth. When March’s employment cost index was released on April 30, it showed Americans’ wages rose 4.4% from a year ago. That was well above the level that Powell is seeking for wage growth to be what he calls “consistent” with a 2% inflation economy. 

But the latest jobs report showed average hourly earnings rose just 0.2% month over month to $34.75 in April, and 3.9% from a year ago. Those figures were both below consensus estimates, and down from 0.3% and 4.1% in March. That’s a good sign for the Fed’s inflation fight—and for investors that feared the return of stagflation.

“For those grappling with renewed stagflation fears, this payrolls report supports what Powell said earlier this week about not seeing the ‘stag’ or the ‘-flation’ right now. Solid job gains, cooler wage pressures,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, told Fortune via email.

Investors’ positive outlook after the latest jobs report was evident from the spike in markets Friday. The Dow Jones industrial average, the S&P 500, and the Nasdaq all surged more than 1% by midday.

“The markets have been concerned that economic growth was too strong and progress on inflation was stalled. This report leans the other way, making both the equity market and bond market very happy,” David Donabedian, chief investment officer of CIBC Private Wealth U.S., told Fortune via email. “Weaker job growth (but still growth) along with a slowing in wage growth is a near perfect combination for markets.”

To Donabedian’s point, although wage growth declined and the U.S. economy added fewer jobs in April, overall job gains were still substantial and broad-based. More than 60% of all sectors reported job gains for the month. The largest gains were in health care (56,000), social assistance (31,000), and transportation and warehousing (22,000).

Should we expect interest rate cuts by fall?

It may seem illogical for investors to celebrate a cooling labor market, but the prospect of market-juicing interest rate cuts is reason enough for many to feel bullish.

Nationwide’s chief economist, Kathy Bostjancic, explained that bond market investors are now pricing in a 25 basis point rate cut in September, after rising inflation and economic resilience led them to push back their rate cut forecasts earlier this year. 

“If inflation moderates in the coming months, we also see September as the possible start to monetary easing; however, the inflation readings will call the tune for the Fed,” she told Fortune.

Ronald Temple, chief market strategist at Lazard, believes that investors’ expectations for rate cuts have been “pulled forward” as a result of the recent labor-market data as well. “Today’s payroll report combined with the job opening and quit data all point to easing of labor market tightness, which should translate to lower wage and inflation pressure, opening the door for rate cuts as early as the September FOMC meeting,” he told Fortune via email.