The Fed raised interest rates by a quarter point and signals more to come

“The job is not completely done,” he said.

So far, the evidence of labor market moderation in particular remains inconclusive: Initial claims for unemployment benefits remain muted, and the unemployment rate is as low as it has been for half a century. Job vacancies rose in December, and there are now 1.9 jobs available for every unemployed worker.

“The job market continues to be very tight,” Powell said Wednesday. On Friday, the Labor Department will release employment and unemployment numbers for January.

This creates a source of tension for the Fed. Officials always expected prices to begin to cool off as pandemic supply chain issues cleared up and consumers worked through large savings stashes and their spending slowed — and the slowdown is showing. But some policymakers worry that rapid wage growth could keep inflation in services — hotels, restaurants and sporting events — stubbornly higher than it was before the pandemic.

“We’ve seen recognition that the inflation picture is improving, but that doesn’t mean the Fed is about to declare victory over it by any means,” said Sarah House, chief economist at Wells Fargo.

Nor is the global economy as weak as many had expected, with a mild winter easing energy-related woes in Europe and as China reopens from a protracted lockdown. In their statement, Fed officials pointed to the fact that global growth is less at risk than it seemed last year, ignoring the line that the war in Ukraine is ” weighing on global economic activity.”

Instead, Fed policymakers said the war was “contributing to rising global uncertainty.”

Such signs of economic resilience could help the Fed pull back from a soft landing, as it moderates inflation without causing a deep deflation. On the other hand, continued economic strength can support demand and prevent price increases from cooling off enough, if growth proves to be too strong.

Fed officials will focus on where the economy is heading – and how much they think it needs to slow – in the coming months as they determine how high they can raise rates and how long they need to leave them high.