Blockbuster Jobs Report Bolsters Fed’s Patience as It Waits to Cut Rates

Federal Reserve officials left interest rates unchanged this week and signaled that their next move is likely to be a cut — but they also signaled that they are in no hurry to make that change. Friday’s jobs data is likely to support their cautious stance.

Employers hired much more rapidly than expected in January, and average hourly earnings climbed 4.5 percent over the year, the fastest pace since September and a reversal after months of cooling.

While Jerome H. Powell, the Fed chair, made it clear during his news conference on Wednesday that the central bank is not bent on keeping interest rates high just to slow down the labor market, the report suggested that the economy may not be cooling quite as much as policymakers had expected.

And given that continued strength, the Fed is unlikely to feel pressure to cut interest rates at its next meeting in March. While policymakers do not want to hold borrowing costs too high for too long and risk a painful recession, the data suggest that a possible downturn remains very much at bay. Instead of faltering, the job market is booming.

The central bank’s policy rate is now set to 5.25 to 5.5 percent, a level high enough that economists think it will cool the economy as it trickles through financial markets and weighs on mortgage, credit card and business borrowing.

The Fed’s goal in trying to cool the economy is to rein in inflation, and price increases have been receding: Over the past six months, inflation data have been close to normal.

But that has come without much of a broader economic slowdown. While job openings have come down and the housing market slowed in reaction to higher rates, both hiring and consumer spending have remained surprisingly resilient.

Mr. Powell suggested this week that the Fed would like to see more evidence that inflation is coming under control before it begins to cut interest rates, and that it was unlikely to have enough data to feel confident in that before March.

Markets sharply dialed back the chances of a rate cut at that gathering following Friday’s jobs data.

But notably, Mr. Powell said that the Fed is willing to be patient — rather than wary and reactive — as it waits for wage growth to slow to normal levels. Some economists think that today’s relatively quick pace of wage gains could prevent inflation from stabilizing at 2 percent over time, were they to prevail.

“I think the labor market by many measures is at or near normal, but not totally back to normal,” Mr. Powell said. “Job openings are not quite back to where they were,” and wage increases “are not quite back to where they were.”

He added that wage increases “probably will take a couple of years to get all the way back, and that’s OK.”