The U.S. economy is continuing to add jobs at a modest but steady rate despite fears about the federal budget and headwinds from overseas, turning the spotlight on the Federal Reserve and its plans for slowing its stimulus program.

The Labor Department reported on Friday that the economy added 195,000 jobs in June, slightly higher than expectations, and revised the numbers for April and May up by 70,000. The unemployment rate remained steady at 7.6 percent as the labor force participation rate and the
employment-population ratio remained unchanged from the month before.

Nearly 12 million Americans are still looking for work, with 4.3 million having been searching for 27 weeks or longer. The number of discouraged workers rose to 1 million, 200,000 higher than a year ago. Earnings edged up by 10 cents a week for non-farm workers, but hours worked per week remained the same.

Gold fell and bond prices rose in response to the jobs news, with the 10-year U.S. Treasury bond surging to 2.7 percent, the highest since 2011, in a sign of increased fears about the Fed withdrawing stimulus.

The moderately strong jobs report will raise the odds that the Federal Reserve will begin to slow down its stimulus. At its most recent monetary policy meeting in June, the Fed announced that it would gradually lower the amount of its monthly bond purchases intended to spur economic growth from $85 billion to zero to roughly coincide with the unemployment rate falling to 7 percent. Many investors interpreted the Fed’s statement as a sign that “tapering,” or a reduction in the size of the monthly bond buys, would start as early as September. Friday’s jobs numbers suggest that the taper could come as soon as September, an expectation reflecting in bond market developments.

The S&P 500 is down nearly 3 percent since Federal Reserve chairman Ben Bernanke said at a May 22nd congressional hearing that the Fed would move toward tapering in the “next few meetings” of the Fed’s monetary policy committee. In a June 19th press conference, Bernanke stressed that any action on the central bank’s part would be conditioned on economic data, a point that a number of other members of the Fed have reiterated in the past few weeks as markets showed signs of preparing for the Fed to tighten the money supply.

Although the Fed looks at a number of economic indicators rather than just one employment situation report, traders are likely to anticipate that Friday’s relatively favorable labor market data means that the Fed will withdraw support sooner, mitigating the boost to stocks from the good news.

“I’d love to get to the point in the market where good news is good news,” Art Hogan, a managing director at Lazard Capital Markets, told CNN. “But I just don’t think we’re there yet.”

At June’s rate of job growth, the unemployment rate would fall below 7 percent as soon as late spring 2014, according to the Federal Reserve Bank of Atlanta’s jobs calculator. At a 182,000 jobs per month rate, the average over the past year, the economy would reach 7 percent unemployment in June of next year, right in line with the Fed’s own projections. It would reach 6.5 percent unemployment, the Fed’s threshold for raising short-term interest rates in summer of 2015, also the date projected by members of the Fed.

So far, it has been hard to see in the data any effects of the automatic budget cuts, or sequestration, that were set in motion by the 2011 debt ceiling deal and took effect in March. The across-the-board cuts will reduce outlays by roughly $80 billion this year.

Friday’s report shows only faint signs of sequestration’s effects on the economy. The number of federal government jobs dropped by five thousand, for a total of 65,000 federal jobs lost over the past 12 months. Those losses, however, were significantly lower than the 14,000 decrease in May.

Senator Jack Reed (D-R.I.) told Politico that federal agencies’ ability to manage the blunt spending reductions has prevented further harm up to this point, but that they might not be able to spare the government from inflicting further pain on the economy in future months, saying that “that flexibility diminishes with next year…. The ability to manage through this thing becomes almost impossible, and then you see real significant deterioration across the board, defense programs and domestic programs.”

Broader underemployment, as measured by the U-6 unemployment rate, jumped to 14.3 percent in June from 13.8 the month before, a significant and worrying development. The number of people working part-time for economic reasons increased by a seasonally-adjusted 322,ooo in June, bringing the total number to 8.2 million. Another sign of potential weakness in the report was the concentration of job gains in industries characterized by low-wage work. In particular, retail and leisure and hospitality jobs made up the bulk of the gains. Administrative and waste services, a category that includes routine work provided for other businesses, accounted for nearly 40,000 new jobs.