“The work is not quite done,” he said.
Evidence of a slowing labor market in particular remains inconclusive so far: initial jobless claims remain subdued and the unemployment rate is at its lowest level in half a century. Job vacancies increased in December, with 1.9 job openings now available for every unemployed worker.
“The labor market remains very tight,” Mr. Powell said on Wednesday. The Labor Department will release employment and unemployment data for January on Friday.
That puts pressure on the Fed. Officials have been expecting prices to start to cool as pandemic supply chain issues are resolved and consumers save a lot and slow down spending — a deceleration that is showing. But some policymakers worry that rapid wage growth could keep inflation in the services sector — hotels, restaurants, sporting events — stubbornly above pre-pandemic levels.
“We’re seeing acknowledgment 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, senior economist at Wells Fargo & Co.
The global economy was also less sluggish than many expected, as a mild winter eased energy-related problems in Europe and China reopened from rolling shutdowns. In their statement, Fed officials acknowledged that global economic growth was not as threatened as it was last year and dropped the notion that the war in Ukraine was “putting pressure on global economic activity.”
Instead, Fed policymakers said the battle “is exacerbating global uncertainty.”
This sign of economic resilience could help the Fed achieve a soft landing that would moderate inflation without causing a deep recession. On the other hand, if growth proves to be too strong, continued economic strength could support demand and prevent price increases from slowing sufficiently.
Fed officials will be watching the direction of the economy in the coming months — and how much more they think it needs to slow — as they decide how high to raise rates and how long they need to stay there.