It’s already clear that the Federal Reserve is poised to raise interest rates by a quarter-point this month, as it looks to make borrowing more expensive in an attempt to cool off the economy.
The central bank’s chair, Jerome H. Powell, made that clear this week.
But the February employment data released on Friday will inform policymakers as they discuss plans for shrinking the central bank’s balance sheet (something that can take additional juice out of the economy) and as they lay out estimates for how quickly interest rates will increase in the months ahead.
The latest employment report showed that the economy added 678,000 jobs last month. But more important, from the Fed’s perspective, it showed that unemployment fell to 3.8 percent, workers rejoined the labor force and wage growth came in flat after a series of brisk increases.
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The data reaffirm that the job market is vibrant, and may also reduce concern that the nation is at the start of an inflationary spiral in which wage and price increases push one another steadily higher.
That could influence how officials think about the outlook for interest rates in the months and years ahead. The Fed will release forecasts in its quarterly Summary of Economic Projections alongside its March policy decision, and given that a rate increase is already expected, those policy expectations are likely to take center stage.
Russia’s invasion of Ukraine has made the path ahead more uncertain, so the economic projections will serve as more of a rough blueprint than ironclad plan. But for now, the economy is looking strong — and officials are likely to project a series of policy changes in 2022 and into 2023.
But the figures may give the Fed a little more breathing room to pull back support steadily, but not frantically. As jobs have proved plentiful and workers have been hard to find, wages had begun rising swiftly, catching the Fed’s attention. Quick pay gains have raised the possibility that labor costs could begin to feed into higher prices, making them last longer.
“The big thing we don’t want is to have inflation become entrenched and self-perpetuating,” Mr. Powell said during congressional testimony this week. “That’s why we’re moving ahead with our program to raise interest rates and get inflation under control.”
The report released on Friday is just one number and the data is regularly revised, but the new numbers may take pressure off at the margin. Average hourly earnings climbed by 5.1 percent in the year through February, well under the 5.8 percent gain that economists had expected. On a monthly basis, pay did not pick up at all.
The annual gain is still a solid pace of wage increases for America’s workers — hourly earnings typically picked up by 2 to 3 percent in the years before the pandemic — but if pay gains continue to moderate, they might strike central bankers as more sustainable.
That is especially true because the slowdown came as the share of people working or looking for work picked up, and as workweek hours increased, suggesting that employers are managing to find a more ready supply of labor. With more workers available, the economy may be able to produce more and grow more rapidly without overheating.
Fed officials had signaled that they would be closely watching this employment report, the last one they will get before they meet.
Chris Waller, a Fed governor, said late last month that he might support an aggressive start to the Fed’s interest rate increases if inflation reports and the job report for February showed “that the economy is still running exceedingly hot.”
Mr. Powell appears to have shot down the idea of a large March rate increase, but Mr. Waller’s emphasis demonstrated how much each fresh data point can help affirm — or complicate — how central bankers are understanding the economy at a critical moment.
But officials will have to weigh the latest figures against what is happening in Ukraine. And it is not obvious, at this point, how that might affect the path forward for policy, because the war is raising gas prices but may weigh on consumer spending.
